Oil

Today we’ve seen relatively robust upward swing in oil as the market did not wait for negative news but were offered solid support thanks to a number of positive catalysts, including:

  • Rumors that China has started to fill strategic reserves taking advantage of the low oil price. The volume, duration, speed of purchases was not made public, so the news played out as a very general bullish catalyst.
  • Trump tweeted that Saudi Arabia and Russia may again commit themselves to coordination of oil supply. The deal, according to Trump, may take place in the coming days, which is consistent with reports that Trump held phone talks with President Putin during which they “discussed oil market.” It also became known that Trump invited US oil producers to the White House to discuss the situation, in addition, Texas companies turned to the state administration to discuss possible output cuts.
  • The Baltic Exchange data shows that the cost of transportation of US oil to China reached $10 per barrel, i.e. half the price of a barrel of the American benchmark WTI.

Cheaper grades of oil in the US are currently trading at absurd prices for producers which is increasing chances that the market may soon be surprised with substantial output curbs.

  • At the same time, Saudi Arabia is not going to stop – kingdom production reportedly exceeded 12.5 million b/d, which, however, is not a surprise for the market.

U.S. dollar

The focus is now on the growth of unemployment due to self-isolation measures, with initial unemployment claims as the key proxy indicator. The estimated March reading is 3.7M (+ 400K compared to the March 21 print), but risks are skewed to the upside, since the number of regions where self-isolation regime have been introduced is rising rapidly while it is difficult to calculate precise figures due to difficulties of Labor Department in processing a huge inflow of applications. More than 80% of Americans are now in some way affected by quarantine measures.

Huge spending package from the government which includes unemployed benefit of $680 per week (or 17 per hour for 40-hour week) may contribute to the growth of “intended unemployment” which is an unwelcome consequence of emergency fiscal stimulus that can hamper rebound of labor supply after quarantine measures are lifted. Dollar is expected to move lower after the release pricing in growing weakness of the US economy.

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