Oil took markets on another rollercoaster ride yesterday as Brent somehow managed to reverse an early 12 per cent crash to 1999 lows and give battered petrol currencies and stock markets something buoyant to climb on.
The wildest trading in oil market history continued with benchmark Brent initially swallow-diving below $16 (Sh1,696) a barrel, after US crude prices had gone deeply negative earlier in the week, only to then rally to nearly $20 (Sh2,120).
With coronavirus lockdowns slashing demand for everything from petrol to jet fuel, and markets still bloated by a turf war being fought by Saudi Arabia and Russia, places to store the excess supply are running out.
Christopher Peel, CIO of Tavistock Wealth, said eight oil supertankers were now moored on the river outside his window in the Portuguese capital Lisbon.
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“There is nowhere to put the oil so it shouldn’t come as any surprise to anyone that the front months (oil price contracts) are getting decimated,” Peel said, though he predicted it should be a relatively temporary situation.
As well as the fightback from oil, there was encouragement that Europe’s main stock markets were moving higher after a poor close overnight in New York and a mixed day for Asia. Focus was on whether European Union leaders, who meet on Thursday, will be able to agree more aid to help the region cope with the coronavirus outbreak. Recent days have seen a blizzard of fresh stimulus announced in other economies.
The pan-European STOXX 600 index and Wall Street futures were up around one per cent after both went tumbling more than three per centon Tuesday following the collapse in oil prices.
Italian shares gained 1.2 per cent and the government’s bond yield steadied after Prime Minister Giuseppe Conte said Italy, one of the countries hit hardest by the pandemic, could start pulling out of strict stay-at-home orders from May 4.
Traders were also buoyed after Italy breezed through a major debt sale on Tuesday and speculation continued that the European Central Bank would provide more support measures.
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“It’s no surprise that we see (bond yields slipping) today,” said DZ Bank strategist Sebastian Fellechner, citing the conclusion of Italy’s jumbo bond sale.
“Brent is stable this morning .... This is also reflected then in the government bond market, in that we see spreads are stabilising and (core) yields are slightly higher this morning.”
Germany’s 10-year yield was up two basis points to -0.46 per cent. The five-year U.S. Treasuries yield also rose to 0.35 per cent after hitting a record low of 0.3010 per cent on Tuesday. The 10-year notes yield stood at 0.58 per cent.