Morning Commentary: A Historic Distinction Without a Difference

Foreign Exchange - Morning Commentary
A Historic Distinction Without a Difference 
Share this story:
Facebook
Twitter
LinkedIn
Email
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
After a marathon series of negotiations, OPEC nations and other top oil producing countries finally agreed to a production cut of 9.7 million barrels a day, slightly less than expected. 

Heading into the weekend, this deal looked to be in jeopardy with Mexico threatening to walk away from it.  Ultimately, it appears that Mexico won a slight victory by agreeing to a 100,000 barrel a day cut which is less than its pro-rated share.  Conversely, Russia appears to be one of the biggest losers as it agreed to cut production by 2.5 million barrels, which is more than Saudi Arabia agreed to cut. 

Oil prices initially popped on confirmation of the deal but has since given up nearly all of its gains.  Brent crude’s six month contango has also gotten deeper.   Contango is a market condition where spot prices are lower than futures prices and indicates oversupply. 

The reason for this has to do with the demand side of supply/demand balance which dictates the equilibrium market price.  While the agreed upon production cuts have reduced the supply of oil, the magnitude of the virus driven demand shock is still greater and should continue to pressure oil prices.  As touched upon in past commentaries, shocks may create recessions, but recessions continue long after the initial shock has dissipated as confidence issues linger in the marketplace.  Certainly, the production deal helps as it relieves some of the inventory pressures in the market, but the overall, energy price picture should still be dominated by demand factors.   
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • Positive virus headlines continue to come out with the WHO confirming 70 vaccines currently in development worldwide.  Of these, 3 are currently in clinical trial.  Spain saw its slowest rate of COVID-19 infections in three weeks while Italy extended its shutdown but did allow certain businesses to reopen. 
  • Data flow is light today with all European and many Asian markets closed.  However, data flow should pick up later this week as economic prints covering March/Q1 comes out.  These economic data series should give the markets a better understanding of the impact on economic activity. 
If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list.
Copyright ©2020 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
TERMS & CONDITIONS  |  PRIVACY STATEMENT
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC
                                                           

Comments

Popular posts from this blog

Are tax hikes coming?