The markets deal yet another blow to many traders in a continuation of strange market conditions! During the last session, we saw the DAX 30 hit a session high of 10772 and a session low of 10437 giving us a range of 335 points compared to the average daily range of 351. At the close of play yesterday, we closed at 10548 which was 1412 points below the 200EMA and 300 points below the 50EMA.

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21-04-2020 DAX Analysis

Oil Capitulation

The contract for May delivery of West Texas Intermediate (which is the US oil benchmark) is due to expire today and yesterday very few people want to buy it. This is because traders perceived that storage was running out in the US and no one would be willing to take delivery of the oil if they did hold this contract. So there were just suddenly way way more sellers than buyers.

The concern is that there not enough storage for all of the oil being produced. And this is a fundamental issue. The US produces a lot and demand is falling. Due to lockdown, so many people have lost their jobs, there are less people driving and so there is much less demand for gasoline which means refineries are taking less crude oil because they don’t need to produce as much gasoline. There is a huge mismatch between demand and supply and traders are worried that they’re not gonna be able to put oil into storage anywhere, so the only thing to do is for the contract to get cheaper and cheaper and cheaper.

The only solution seems to be that production comes offline! Perhaps this has a knock-on effect when the virus is under control and demand begins to increase again. If this production cut goes wrong, then we can very quickly find ourselves on the reverse side of this issue and have a shortage.


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