Forex Signals Brief for Apr 21: The Unprecedented Oil Price Plunge
Rowan Crosby • 2 min read
US Market Wrap
There was only one focus for markets yesterday and that was the unprecedented plunge in the price of oil.
For the first time in history, the May WTI contract fell below $0. In fact, at one point in the session, price was -$40.32 per barrel, before settling at -$37.63. Prices are creeping higher today as well, but oil traders would be licking their lips.
So how can the value of a commodity have a negative value?
The issue is simply one of supply and demand. The first thing to note here is that the April contract expires today. The further out monthly contracts are still trading at realistic values around $20.
What has happened in oil is that with the global economies shutting down, demand has dried up. So all the oil that is getting produced is simply getting stockpiled and there is now plenty of supply.
Prices can trade negatively because oil still needs to be stored which then costs money. So if you were to take physical delivery at the expiration of the April contract, you would need to pay to store it and that is not a great situation to be in at the moment. So producers can’t store it and can’t sell it.
Hence the oil fire sale that we saw yesterday and we could very well have more on the way.
The Data Agenda
Employment in the UK will be a big one and the expectation is that claims will jump sharply to above 170K – which is massive for the UK.
Meanwhile, economic sentiment form Germany will be one to watch and the number continues to remain soft – albeit slightly improved on the prior month.
Later in the US session, we get API inventories, which will have a fair bit of interest given what we’ve been seeing in the last few days with WTI.
Forex Signal Update
The FX Leaders Team closed one signal yesterday for a win, in what was a volatile session for many products.
Oil – Pending Signal
WTI is certainly grabbing the headlines. Despite the big selling in the front-month contract, we have to realise that most of the volume is now in May anyway. But price is still under pressure and we will keep on looking for opportunities to the short side for the time being.
SPX – Watching
The SPX fell away yesterday as falling oil dragged the overall market down with it. I’m still watching 2,900 as my line in the sand for an upside break.
As we can see on the charts at the moment, BTC is really just rotating around this $7,000 level.
There was some weakness yesterday and again we are seeing a correlation between Bitcoin and risk assets, which is not something we’ve been familiar with in the past.
Nevertheless, we sit and wait for a break out of the range to see who is ultimately in control.