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Economic Fears Trump Supply Threats

Tuesday, Jan 21 2020
Market Talk

Economic fears are trumping supply threats this morning as global stock markets trade lower, pulling energy prices along for the ride. Concerns that the mysterious coronavirus spreading in China could have widespread effects on the world economy are taking the blame for the selling in both asset classes. (Cue the “I thought corona virus was what I caught on spring break” jokes). 

Energy contracts had lost their correlation with stocks in recent weeks as U.S. equity indices have surged to record highs, while petroleum prices are breaking down without a supply threat to prop them up. Now that economic fear seems to be taking a turn at driving the action, it seems likely we’ll see the a stronger tie in the daily price movements between asset classes.

Yet another failure to sustain a rally sparked by Middle East unrest, and the subsequent selling this morning are pushing energy futures back below their five-month-old bullish trend lines, and threatening another wave of selling if buyers don’t step up this week.

The IMF published its quarterly economic outlook Monday, making modest reductions to its global forecasts for 2020 and 2021, but noting that things are looking better than they were a few months ago, thanks to accommodative monetary policy from major central banks and a cooling in the trade wars. While the global economy is expected to grow by 3.3 percent this year, and 3.4 percent next year, the U.S. is expected to slide from 2.3 percent in 2019, to 2 percent in 2020 then to 1.7 percent in 2021.

Results of Friday’s auction for the shuttered PES refining complex are supposed to be revealed Wednesday in bankruptcy court.

Click here to download a PDF of today's TACenergy Market Talk.

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