A Potential Coronavirus Stimulus Bill Has Futures Trading Higher
March 24th, 2020
The news about the possible coronavirus stimulus bill and the Saudi Arabia and US oil alliance has the stock futures trading limit up and energy market trading higher this morning as traders are trying to get in front of the above mentioned stimulus package that we keep getting told is close. The Republicans and Democrats continue to hash out the details and will hopefully come to agreement soon.
US Energy Secretary Dan Brouillette said there was the possibility of a joint US-Saudi oil alliance as one possible idea under consideration. This news along with actions by the Fed to do all it can to accommodate the markets has provide some optimism and that has brought buying into the markets. My estimation at this point is a great amount of this buying has all been part of the large players and their computer generated programs that were triggered by the positive headlines. As more and more people and cities go on lockdown, which is the way to slow the spread of the virus and is a good thing, the more our economy is taking a hit. The longer term implications are unknown, but we know this is not a good thing and it will be a very difficult process to work our way back.
The US dollar index traded to a news 3 year high in yesterday’s trading. As the dollar index rises, foreign investors tend to sell crude oil prices in US dollar since it looks more expensive. The dollar is also a bit of a safe haven as investor will buy dollar at times of uncertainty like now. They will sell other asset and buy the dollar and the correlation is as the dollar goes higher it puts downward selling pressure on crude oil specifically and all commodities in general.
Honda Motor Co. announced this week that it will stop auto prosecution in North America for six days because of the expected decline in auto sales – reducing auto production by 40,000 vehicles.
Bloomberg reported that NYMEX gasoline futures settled at $0.4118 cents per gallon, the lowest level since March of 1999. The national average retail gasoline price will be posting some of its lowest prices since 2004.
Traders and analysts are struggling to revise down their forecast for oil demand fast enough. In the beginning of the year. Most forecasters had expected demand to increase or remain flat. However, in a span of a few weeks, the most bearish outlooks seem out of date. The head of research at Vitol, Giovanni Serio, sees demand falling by more than 10 million bpd, which is equivalent to 10% of daily global consumption of crude of about 100 million barrel per day. IHS Market and Standard Chartered bank have also forecast demand could fall by as much as 10 million barrels per day in April. Typically, falling oil price could help push demand higher. However, even a fall in Brent prices is unlikely to increase demand amid industry shutdowns. Some analysts believe oil prices could fall to $10 per barrel or less. An analyst at Jefferies said that if Saudi Arabia maintains its pace of production, the only near term floor for oil prices is zero. So, you have a ton of unknowns that will impact oil prices going forward. Today you are getting the optimism of the stimulus plan providing some buying. The fundamental situation mentioned above about huge demand destruction and a market flooded with crude is on the other side and the ultimate truth is likely to be somewhere in the middle. There are no easy answers, and these are unprecedented times as shutting down the US economy with stay at home orders and cities being locked down is unheard of and the longer that continues the better it is to slow the spread of the virus but the more damage that is being done to the economy and that is the fine line the US is trying to figure out right now.