Stocks were up last week on several factors. First, the cease fire between oil producers reduced the amount of uncertainty in the commodities space. Second, states have been given flexibility to plan out the next (slow and careful) steps of emerging from lockdown while balancing the demands to the health care system. Third, investors were eager for any good news regarding treatment for the COVID19, and it looks like new antiviral drug remdesivir might potentially help some people with the disease.
This is all good news, but there are still some major caveats to go with each element. For example, hard-hit states will require weeks in between loosening lockdown restrictions to make sure infections do not spike as a result. Similarly, remdesivir still has to go through final safety and efficacy protocols and it probably will not be widely available for a few months.
Let us focus on my first point, regarding OPEC and the oil price war. The damage has already been done by this point and the coordinated production slowdown was not enough to stop the commodity price collapse. We are started April 20th trading lower because we have already run out of capacity of storage tanks and various parts throughout the shipping, refinery, and pipeline infrastructure.
Today, the price of oil is experiencing a historic price shock. Oil is trading at less than 11$ a barrel, cheaper than it has been for more than 20 years. For some short-term oil contracts, this represents the worst trading day ever. For some contract deliveries, Oil is functionally zero! In the long run, the producers and storage teams will finally get synchronized but it all goes to prove that last week’s breakthrough negotiation was just too little, too late to stop the crash in oil prices.