The most important thing about the oil price in advance:
- Production cuts show their effect on the oil market
- Oil investors have become very optimistic
The corona crisis and the resulting slump in the global economy have led to major corrections in the stock markets. At the top, the oil price has fallen even more because OPEC and other producing countries have not throttled their production despite the economic downturn. But the states have now changed course. OPEC together with Russia and the USA have decided to cut production significantly by at least 10 million barrels a day and this is gradually having an impact on the market.
American oil exports have fallen to their lowest level since the end of 2017, and inventories have also been reduced significantly. Evidence of declining production is the decline in active oil drilling in the United States. They fell to a record low at just over 300 holes. Due to the falling supply, the oil price has recovered strongly, North American WTI oil has even doubled in the past four weeks. The mood of investors is correspondingly positive. On the US futures market, net long positions with which investors are betting on rising oil prices have risen to their highest level since September 2018.
In addition to the production cuts, a better economic mood is also responsible for the upswing. The easing of the shutdown due to the Corona crisis, which is promised in the major economies, gives hope for better times. In Germany, GDP fell by more than 2 percent in the first quarter, but the latest publications of the leading indicators are pointing up again. The Ifo business climate index, Germany’s most important economic indicator, rose more than expected. Numerous companies are now seeing light on the horizon again, supported by the central bank’s expansionary monetary policy and government aid measures. Even a second wave of infection that is possible at any time or a renewed escalation in the Chinese-American trade dispute is currently not having a negative impact on the oil price. However, the oil price for Brent North Sea could not keep up with WTI oil, but has nevertheless increased by a whopping 60 percent in the past four weeks.
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