Oil Fails To Gain Ground Despite Broad-Based Optimism

Market Action Proves That Oil Demand Outlook Is More Important Than Monetary Stimulus

Despite the widespread optimism in the markets today, oil failed to sustain upside, and this fact looks like a material bearish sign for black gold. Previously, I noted that the situation with real demand will serve as a more important catalyst for oil prices than the financial measures to provide support to the markets.

While the U.S. stock market cheers the upcoming $2 trillion coronavirus aid package and gold rallies thanks to the unlimited quantitative easing program that was recently announced by the U.S. Federal Reserve, demand worries continue to put pressure on oil prices.

Airlines have recently doubled their previous loss estimates and now expect that the industry will lose more than $250 billion in revenue in 2020. The new figure reflects the hit to travel demand dealt by coronavirus containment measures.

The previous estimate of a $113 billion revenue hit now looks miniscule, while it was delivered just a few weeks ago at the beginning of March. The rapid change in airline revenue hit estimates highlights the speed of changes brought by the virus.

Just like the outlook for airlines, a major oil consumer, got much worse in the past weeks, so did the outlook for oil demand in general. As coronavirus cases around the world continue to increase and countries impose new restrictions, the outlook for oil demand in April can get even worse than before.

U.S. Coronavirus Situation In Spotlight

U.S. President Donald Trump hinted that he wants to reopen the U.S. economy and lift restrictions as soon as possible. However, coronavirus containment measures will depend on the actual medical data.

At this point, the general market optimism is fully centered around monetary stimulus since the actual virus data is not inspiring at all. The World Health Organization stated that the U.S. could become the next epicenter of the coronavirus.

Should this happen, investors and traders should expect more virus containment measures which will deal an additional blow to oil demand in the world’s biggest economy.

In my opinion, oil will not be able to show sustainable upside without any signs of stabilization on the virus front. As the potential duration of virus containment measures is unknown, oil traders will have to navigate an environment full of uncertainty.