The Day at a Glance | April 21 2020

The collapse of international oil prices is extended

Yesterday, May crude futures regarding American oil (WTI), whose expiration date is today, recorded negative prices as investors sought to get rid of the instrument at all costs – before the expiration date and prior to the delivery of barrels. Today, the collapse extended to the June contract (-40%) and to other reference prices outside of the United States. (Brent, -18.7%). The price of the WTI contract for May 2020 set at -$37 dpb yesterday; the first ever negative price recorded for the raw material. This phenomenon responds to buyers` of said instruments need to avoid receiving barrels of oil stipulated in the contract, as low levels of demand for crude oil and insufficient storage facilities has made the cost of holding oil more expensive than what could be gained by selling it. Investors preferred to pay whoever took the contract and would receive the delivery, which explains the negative price. It was thought this would only be a financial disarray, which – with the contracts expiring in May – would go back to normality. However, this has spilled over to prices of June contracts; these fell to $15 dpb this morning, while other international blends, such as the Brent (European and global reference price) also had an important setback; something that did not occur yesterday despite the collapse concerning the WTI. These movements suggest the financial stress caused by the disarray in the American market yesterday is having repercussions on the rest, and that expectations are still negative for an industry in crisis due to COVID-19. Saudi Arabia and the OPEC+ is considering moving up cuts scheduled to take place in May, while in the US the industry is requesting changes regarding the FED`s $600 billion dollar aid package, in attempts to meet financial obligations given the sector`s large amount of debt. President Donald Trump is considering stopping imports from Saudi Arabia.

Confidence regarding Germany`s economy is revived

Figures concerning the ZEW Financial Market Survey were surprisingly more positive than expected and reflected investors` confidence in Europe`s largest economy`s quick recovery starting 3Q20. In April, growth expectations for the following 6 months were increased to their highest level since 2015, which shows optimism moving forward starts to dominate in the region. The measure reflects optimism due to a moderation in the pace of COVID-19 spreading in Germany, and Chancellor Angela Merkel`s actions, which starting this week, has eased social distancing measures. Small shops and retail stores could begin to reopen in the following days, easing off some economic pressure caused by the virus; however, other businesses such as bars and restaurants must wait a longer period of time. It`s still unclear if consumers intend to normalize their spending, but news of a gradual reopening has recovered confidence. The people who took the survey don`t expect to see the contractions in the economy to go past April-June; even though they also don`t expect to see pre-crisis levels of production until 2022. In general, expectations are positive, not only in Germany, but in the Eurozone as a whole, where the indicator rebounded considerably.