Weak demand spurs oil price’s downwards trend
JOHANNESBURG - Oil continued its down trend on the JSE yesterday on weak demand despite an uptick in the Brent crude price, as risk sentiment relentlessly gripped the markets.
The price of Brent crude went up 1.23percent to rise above the $30 (R495.88) mark by lunchtime before falling by 0.77percent to $29.73 per barrel in the afternoon trade.
The impact of slowing demand amid a dip in global economic growth due to the spreading coronavirus pandemic has been significant on oil markets, resulting in last week’s largest one-day oil price decline since the 1991 Gulf War. Markets.com’s Niel Wilson said the combination of a massive supply surge from the Organisation of the Petroleum Exporting Countries (Opec), and a complete collapse in demand, created conditions in the market which were the most bearish imaginable.
“I think we will see the WTI (West Texas Intermediate) under $20 before long, as the build-up in crude stocks is just going to be massive,” Wilson said.
“The amount of spare supply on the market in the coming months will be scary, and crude prices will fall further.” Bassel Khatoun, director of portfolio management at Franklin Templeton Investments, said the prolonged lower oil prices were a tail risk for emerging markets. Khatoun said the vast majority of emerging markets would benefit from the oil price collapse, despite the near-term negative market reaction.
“In an environment of slowing economic growth due to the coronavirus pandemic, lower oil prices represent a substantial additional stimulus to the broader asset class, particularly within Asia,” Khatoun said.
“Our portfolios are predominantly positioned in domestic-orientated consumer and technology businesses, plus world-leading semiconductor manufacturers - all of which stand to see benefits from lower energy costs.” Meanwhile, gold was unable to sustain any solid recovery and was still trading below $1500 yesterday, despite the rebound of European stocks as investors consider the dollar as a prime destination of safety amid the market chaos. Gold was 1.58percent weaker, selling at $1484.87 per ounce. ActivTrades’s chief analyst Carlo Alberto de Casa said the price of gold had rebounded strongly from the support level of $1450, but the main trend remained unchanged. “It is clear the sell-off of gold extends far beyond fundamental reasons, as investors are still struggling to find cash for covering margin calls or rebalancing their portfolio, amid these turbulent and volatile times,” De Casa said.
"Cash, rather than gold, seems to be the real king in this scenario.”