Morning Minutes

US Oil Price Collapse Drives Stocks Downward

April 20, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

Oil prices have plunged again to start the new trading week with WTI nosediving 38% toward $11.25/bbl and Brent falling 6.1% toward $26.25. Natural gas and gasoline are down 2.6% and 2.0% respectively. The lack of a coordinated reduction in US production levels (which are being left up to the producers) in a time of cratering demand and worries about running out of capacity to store all the excess supply continue to weigh on investors’ minds.

Some of the volatility in the current oil contract may be related to its expiry tomorrow, but there appears to be wider pressure on oil with the next contract out down 11.0% and trading near $22.25/bbl. Copper is down 1.1% indicating wider concern about the health of the global economy and a bleak outlook for resource demand.

The drop in energy prices has overflowed into US index futures, particularly Dow and S&P futures which are both down about 2.1%, giving back much of Friday’s gains. In contrast, NASDAQ futures, which have a lower weighting in energy stocks relative to their US peers, are down about 1.1%

Earnings season resumes this evening with IBM scheduled to report after the close. Other potentially significant reports scheduled for this week include Netflix, Canadian Pacific and United Airlines Tuesday, Boeing, Visa and Tesla on Wednesday, Amazon, Intel and Starbucks on Thursday, and finishing up with Imperial Oil, Husky Energy and American Express on Friday.

Considering the selloff in oil prices, this week’s US energy inventory levels (API oil Tuesday evening, DOE oil/gas Wednesday morning, Natgas Thursday morning) could be of particular interest to investors this week, along with weekly initial and continuing jobless claims on Thursday. Flash manufacturing PMI for the US, Germany, France and Japan is also due Thursday. The rest of the week is pretty light for economic news with no major central bank meetings and data releases focused mainly on house prices/sales.

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