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Based out of Auckland, New Zealand, we bring an institutional trading experience to the retail market.
Mark O'Donnell
Research Analyst
March 19, 2020

Finally, a Rebound For Oil

Finally, a Rebound for Oil

Crude Oil has rebounded back to above $25 per barrel, with a 25% gain for the day. This is one of the biggest single day gains in oil’s history. This rebound comes after WTI had seemingly hit rock bottom, reaching $20/barrel just a day earlier.

Similarly, Brent oil also recovered from a near 17 year low, back up to $27 a barrel.

WTI had been consolidating at the $30 mark following its massive sell-off earlier in the month, after trade negotiations between the OPEC alliance and Russia collapsed, and Saudi Arabia announced it would be increasing its oil production up to 10 million barrels a day.

Immediately following this announcement, oil crashed from $45 to $30 per barrel. Analysts were unsure of just when oil would bottom out, speculating that it could fall as low as $20/barrel. And after a period of brief consolidation it did just that, fuelled by the sudden rise in severity of the coronavirus pandemic.

In a previous article, I said that crude oil was falling with no bottom in sight. And with today’s rebound, it seems that bottom may have finally been found. However, with the current market volatility, there are absolutely no guarantees. Large swings in either direction have become commonplace, and it seems unlikely that oil will make any real recovery due to the current market sentiment.

Despite these strong gains for the day, it is unlikely that oil will make any sort of significant recovery, as the trade war still rages on. As the de facto leader of the OPEC alliance, Saudi Arabia is committed to reducing the price of oil in order to undercut Russia, and are showing that they are willing to suffer lower profits to gain more customers.

As well as this, there is also just less demand for oil with the coronavirus pandemic causing people to stay at home under self-isolation. With public gatherings now banned in a significant number of countries, travel being limited, and social distancing being preached, there are less and less opportunities for people to spend fuel. Many countries have now introduced extremely strict travel restrictions, effectively closing their borders. Just yesterday both Australia and New Zealand announced that they would be closing their borders to all travellers except citizens and permanent residents. The US-Canada border was also closed, to the mutual agreement of both governments.

This reduction in vehicular travel, from cars to planes, has caused the demand for oil to drop sharply, with airlines having been the hardest hit. In New Zealand, the government has offered a $900 million loan for Air New Zealand, in order to keep it afloat. It has also stopped Air NZ stocks from being sold.

These announcements were made after the NZ Dollar plummeted, dropping down to an unprecedented 55 cents against the US Dollar. A combination of both the USD’s current strength as the only currency gaining value, as well as the Kiwi Dollar’s trademark volatility and reputation as a high risk asset, and the result could only have been disaster.

We have sent a special message to the New Zealand government regarding the COVID-19 situation. Presented by Anish Lal and Philip van den Berg at BlackBull Markets, you can view it below, or otherwise on our other social media platforms, such as Twitter and Instagram.

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