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Oil Continues To Surprise

Published 09/25/2020, 06:15 PM
Updated 07/09/2023, 06:31 AM

Arguably, one of this week's biggest surprises has to be that oil prices continued to recover, helped by gasoline inventory draws, and the fingers crossed possibility a US stimulus deal is in the works sooner than expected. But in the context of shoulder season demand, news flow on rising COVID infection rates, a stronger US dollar, and the prospect of Libyan exports restarting—all of which are likely to pressure crude next week.

With stock markets stabilizing somewhat ahead of the weekend, I am not sure how much value there is in chasing Forex today, so it could be a cleanup affair into the weekend unless a headline surprise on the fiscal front. Even then, the ambiguity of how to trade the US Dollar on a US fiscal pump is probably a question best left until next week.

China's largest property group, China Evergrande (OTC:EGRNY), was in the spotlight overnight after reports that it had warned local officials of a potential cash crunch. The sentiment was also not helped as it emerged that at least five Chinese banks and two trust firms held emergency discussions around their exposure and access to collateral.

If you take that story and consider some of the comments from Wednesday's Dallas Fed energy survey regarding peak oil and undeclared bankruptcies, you can see why investors are getting nervous. 

Data from Refinitiv Lipper showed that high yield investors withdrew $4.2bn in the week ending 23rd September. That is the most massive outflow since July and the 10th largest outflow on record. In comparison, investment-grade funds continued to take in funds with inflows of $4.16bn last week.

Australian bank stocks outperformed overnight, helping the All Australian 200 finish the day up 1.53%, making it the best performing market in the overnight session. The sector was boosted by comments from Treasurer Josh Frydenberg around the easing of lending standards to boost the economy. Responsible lending obligation rules will be overhauled, allowing banks to rely on borrowers' income and spending information instead of banks' verification processes.

In the US, the Democrats are putting together a new stimulus proposal to compromise with the Republicans. The package is worth $2.4tn compared to the $500bn package the last Republican bill passed. The pressure to try and find some middle ground is also growing on the Democrats, mostly from swing districts.

Latest comments

hey, guess I should have clarified the term. Long term as in anywhere from 2-3 months,  not as in a day trade or swing trade.
surprise? oil is still undervalued by 75%
you know it truly scares me about taking a grab on oil stocks? PE compression. the pace of development in electric cars is far greater than I ever imagined. If this continues it's only a matter of time before oil companies are seen as dying technology. even if we go through a couple of years with high oil prices there won't be a multiple on the stocks worth talking about
I dont disagree but oil is used for so many other itmes than just cars...That would never make it completely obsolete
by 2050 it will be exciting to see 10% of the world using electric cars!
Oil stocks are long term if you buy the right ones. Can see a 100% gain or more . Even the little guy can get in now. Just saying
u said crude in Short term, Lawrence said oil in long term (at least 3 months). 2 diffenrent problems, what do u analyse for???
I provided opinion both LT and ST, and I party backed my statements.
yet meanwhile, every Broker is saying buy apple, Tesla and peloton
Wait, so you want the oil price to become negative again? 40 aint low enough for you? Sure
IMO in short term they have scope to drop again, not at "-something", but I see more room down than up in short-term.
cause you're a millenial living with your parents, driving an electric scooter
How in the world does this guy think oil prices are recovering? BP just hit lowest stock price since 1995, Exxon down over 45% YTD, OXY and Vermillion is down to March lows, all the bankruptcies that wiped out investors and all the ETFs in the sector have taken huge hits such as USO which as of today was down 73% YTD. I mean today i paid 1.78/gallon for gas 😳 What am i missing here? Maybe he’s only watching the commodities, but even then, its not like sub 40 crude oil or WTI is something to get excited about...
Really???? What recovery. My oil stocks arenin the basement
Mine are buried in the basement lol
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