Oil Crashes, Will Stocks Follow?

Oil Crashes, Will Stocks Follow?

Posted On April 21, 2020 2:55 pm

Stocks will remain the overall focus but the spotlight over the past two days has been oil.  On Monday, the May contract for West Texas Crude crashed below zero, closing at a negative -$37 per barrel! The widely-followed “United States Oil Fund (USO)” which had over $7 billion in assets under management just a month ago dropped to one single dollar. Down some 90% in the past month alone.

We’ve seen negative interest rates, a perversion of the cost of money but somewhat conceptual, but what do negative prices for a hard asset mean and what are the implications for the energy sector and the broader market at large?  Oil and the futures have their own specific dynamics outside of the physical market but it gives us insight into just how bleak the outlook is for the sector.

On the supply side, new fracking technology and a fractious OPEC which had boosted production rather than cut as the Saudis and Russkies engaged in a spat created a glut. These actions were taken just as demand has collapsed due to the global shutdown. Some are speculating the Saudi and Russian action was done as means to break the U.S. oil industry which has essentially become energy independent over the past few years. The flooding of oil supply has created a situation in which there is literally no available storage space available. Leaving producers with the dilemma of shutting down production, which is extremely expensive, or paying someone to simply take the oil off their hands.

Think of the… Continue reading at StockNews.com

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Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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