Monday, April 20, 2020

Negative Oil Prices

What exciting times we live in... I was on the car when I saw oil prices going to -$37 and thinking to myself what on earth is going on?

In a nutshell, the market has determined that the output cuts by OPEC could not make up for the detrimental loss of demand which by the way was quite a record in its own right- cutting daily output by 9.7 million barrels. Unfortunately, this unprecedented record cuts were soon accompanied by the unprecedented price drop, plunging more than 100% yesterday.

Personally, I don't invest in oil and don't really want the roller coaster ride given that its volatility is very very extreme. But I think the lessons can be carried forward to my areas of interest in the stock market.

Recently, the oil price drops might have found its victims in the oil business- one of which was Hin Leong holdings which were reported to have suffered financial losses due huge drops in oil prices. This in turn led to a flurry of action as banks who have lent $$ to Hin Leong were at risk of losing money. I think what is worrying here is the vicious cycle that is currently happening, where oil prices drop -> lead to oil companies suffering -> banks might then suffer losses if they can't recover the debt.

Secondly, this detrimental loss of demand that the oil market is showing us can be extended to the general market, so I think stocks in general will have some pretty red going forward as less demand should mean less profits and thus lower prices.

Actually I think equity markets are still ok, but I was expecting them to crash every more. But we will see again.

STI 2560.98
(-36.87/-1.42%)

P.S. A nice picture of an oil pump to soothe my nerves haha..



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Negative Oil Prices

What exciting times we live in... I was on the car when I saw oil prices going to -$37 and thinking to myself what on earth is going on? ...