Tuesday, 21st April 2020
· Less demand for oil due to lockdown plus over production from OPEP+ = Historic crash of oil going in the negative territory to -40$.
· U.S. crude stockpiles rose by 15 million barrels last week to 518.6 million, the highest in almost three years
· There are currently around 34 million barrels of crude in floating storage, with a further 45 million to be loaded onto ships before the end of the month
· Brent trading at 21.26$. January : 60$. 65% decline
Opinion: As stocking oil will remain an issue, likely to see the WTI June futures contract go again in negative territory to avoid physical delivery.
Opinion: Why decline in price oil is not observed at the gas station? 1)WTI crashed not Brent. 2)Price Structure of retail gas allow to reduce impact of variation for consumers. In France, Price of oil weighs only 11% of final price. 3)If Brent crashes from 18euros to 5€, final price woud decline by 10 cents in total.
Closing the position: As stated on 16th April note, I hoped for an unexpected exogenous shock for SP500 reversal. The oil crash wasn’t sufficiently large to make the SP500 lie below the 2750. However, technical analysis suggests 3rd Elliot wave is looming. Yet, I prefer to not fight the FED. Closed my MAY PUT 2750 position at 2767 and take an 8,5% loss compared to a potential loss of 50% on the previous trading days.
Lesson of the day: Stock market does not reflect the economy but rather what investors want to see from the economy. Hence why SP500 kept on rising. Strange enough, the stock market seems to be more overpriced today than before the sanitary crisis.