Negative Oil Prices Confirm a Substantial Loss in Demand as a Result of COVID-19
Economic Report Monitor #17
April 20th, 2020
A quiet day of economic reports was overshadowed by a historic one in energy markets. As the May contract of WTI crude oil rolled over today, price collapses through $0 to close at a stunning low of -$37.63. While supply concerns remain mostly understood, this decline helped underline the magnitude of the drop in demand that has been a result of the coronavirus outbreak. Beyond trading of the May contract today, June futures remain stable just above $20 a barrel but are threatened by the extremity of the May contract's close.
The consumption levels as indicated by the EIA's weekly estimates of product supplied show just how bad the demand crisis is. The trailing 4-week average of crude oil product supply tanked to 16.4 million b/d, almost 4 million b/d lower than a year ago and almost 5 million b/d lower than the 2020 peak of 21.1 million b/d. Product supplied data this low have not been seen since July 1992. Finished motor gasoline product supplied alone fell -31.4% to levels never seen by EIA since it started recording data in 1991. With these numbers, it makes more sense why the output cuts suggested by OPEC were useless in attempting to ward off pain in energy futures markets.
Besides the calamity in oil, the Chicago Fed National Activity Index released its latest data, and as expected, saw a robust decline. The index fell to -4.19 from +0.06 in February as all four broad categories of indicators fell. Production indicators contributed the most to the decline, -2.72, as the lockdown's effect on closing businesses continues to be apparent. Employment indicators had the next largest negative contribution at -1.23 with payrolls falling and unemployment rising. So far, the March reading remains above 2008-2009 levels, but that is likely to change with 35 indicators for March still unreleased. With recent releases coming in below expectations, future March releases will likely do the same resulting in revisions to the -4.19 figure.
April 20th, 2020
A quiet day of economic reports was overshadowed by a historic one in energy markets. As the May contract of WTI crude oil rolled over today, price collapses through $0 to close at a stunning low of -$37.63. While supply concerns remain mostly understood, this decline helped underline the magnitude of the drop in demand that has been a result of the coronavirus outbreak. Beyond trading of the May contract today, June futures remain stable just above $20 a barrel but are threatened by the extremity of the May contract's close.
The consumption levels as indicated by the EIA's weekly estimates of product supplied show just how bad the demand crisis is. The trailing 4-week average of crude oil product supply tanked to 16.4 million b/d, almost 4 million b/d lower than a year ago and almost 5 million b/d lower than the 2020 peak of 21.1 million b/d. Product supplied data this low have not been seen since July 1992. Finished motor gasoline product supplied alone fell -31.4% to levels never seen by EIA since it started recording data in 1991. With these numbers, it makes more sense why the output cuts suggested by OPEC were useless in attempting to ward off pain in energy futures markets.
Besides the calamity in oil, the Chicago Fed National Activity Index released its latest data, and as expected, saw a robust decline. The index fell to -4.19 from +0.06 in February as all four broad categories of indicators fell. Production indicators contributed the most to the decline, -2.72, as the lockdown's effect on closing businesses continues to be apparent. Employment indicators had the next largest negative contribution at -1.23 with payrolls falling and unemployment rising. So far, the March reading remains above 2008-2009 levels, but that is likely to change with 35 indicators for March still unreleased. With recent releases coming in below expectations, future March releases will likely do the same resulting in revisions to the -4.19 figure.
Comments
Post a Comment