What has happened
It was another risk off day for markets driven by three factors: further weakness in the oil price, concern about the EU Council meeting on Thursday and weaker US corporate earnings. Equities sold off across the board however the weakness was particularly pronounced in European banks which are now almost 50% lower since the start of the year. The main focus of the market remains the oil price however and any hope that Monday had seen the last of the technical squeeze was short-lived.
What is next for the oil price
Monday’s volatility centered around the May WTI futures contract which expired yesterday but focus has quickly turned to what that means for other contracts. The WTI contract that sees oil physically delivered to Cushing, Oklahoma in June expires on 19th May and unless there is a change in the supply and demand dynamics it is likely this will be a crunch point too. Whilst talk is still focused on the reopening of economies it is unlikely that demand for oil will increase dramatically in the next month given the gradual easing of lockdown that will occur. Equally OPEC ministers had a call last night and there were no further measures announced to suggest either further cuts or a more rapid timetable for those cuts already agreed. Brent Crude also came under pressure yesterday as the seaborne market started reacting to the increasing cost of renting oil tankers. Whilst the Brent Crude market should be able to adapt more flexibly to the storage issues we have seen in Cushing there remains a risk to this market too and this has weighed on sentiment further.