COVID-19 Creates Unprecedented Closures
March 13th, 2020
Yesterday was a very big down day in the energy markets as the spread of the coronavirus caused many closures that are unprecedented. Every major sporting event or league in the world either canceled or suspended all activities for the rest of the season or until further notice. The big event that most of us were looking forward to like most years was the NCAA’s March Madness. As the news broke all day of what next major event was canceled it was a bit surreal and if I heard it once I heard it a thousand times that we are in an unprecedented situation that will require some great patience, understanding, and creatively to navigate.
The events of yesterday very likely got the attention of many that were unsure of what the impact of the coronavirus could be as so many events both big and small got canceled. The impact of this situation may be long lasting and could change some of these events or institutions forever.
I saw this quote yesterday and it helped me understanding a bit why many of these events are being shut down as a small reduction in contact can greatly increase the spread of the virus. Here is the quote: “According to models, a 25% reduction in contacts yields a 50% reduction in infections. So schools are going to close. Daycare is going to close. Flights will be canceled. You won’t be allowed to visit your mom or grandma at the nursing home. Your Fish Fry isn’t going to happen. We may not shut down as totally as Italy has, but we’ll soon be closer to where Italy is today than to where the U.S. was on Monday.” -Tim Carney, Washington Examiner. This is of course one person’s opinion but after all the major events that got shut down yesterday it certainly seems more probable that yesterday was just the start.
Crude oil prices fell yesterday by 4.5% to 7.2%, but the big mover was RBOB which saw prices fall by 19% with the expectation of low driving from individuals due to many coronavirus quarantines being imposed. The decline yesterday in gas took it to a level that has not been seen in 11 years. The move to have many students from grade school all the way to the college level and employees of businesses to learn or work from home will grow and that has an economic and energy demand impact.
After a near 20% decline yesterday and today being Friday it is no surprise that RBOB has rebound up as much as 10 cent in early trading this morning. ULSD and crude oil are also trading higher. Volatility remains high and traders will be cautious as these markets are being impacted by unprecedented events and the worse of this current situation is still unknow.
The Federal Reserve said they would put more liquidity into the markets by making money available in three tranches of $500 billion. “This is a massive increase in temporary liquidity provision and likely much larger than what the market will demand,” said Cornerstone Macro analyst Roberto Perli, who described the actions as “for all practical purposes QE,” because the Fed would once again add to its stock of longer-term Treasury asset.