Oil Market Subject To A Bigger Wave Of Selling Set To Shake Up Other Assets

Oil prices remain under pressure across the board, with the market awash with excess supply as the economic fallout from the coronavirus pandemic hammers demand for fuels.

A huge oversupply has been building since OPEC+, led by Saudi Arabia and Russia, failed to renew output cuts in March. OPEC+ agreed on new unprecedented cuts this month, but government lockdowns to contain the pandemic have cut fuel demand more steeply. The action by the cartel and partners is very much not enough.

The oil market remains in deep trouble and is unlikely to shake off this downside pressure, anytime soon. Following this first large wave of movement, it is still probably that the second wave of a much greater fall will be seen.

There is a further problem with no deflation being observed, where prices are just falling and this environment is not good for anyone. A range of issues are likely arising; oil speculators are going bust, destruction of the US shale industry and a credit crunch if energy firms' bad debts increase and banks start to tighten their belts.

What does this mean for the market

Well, we have already seen some signs of reaction, which were observed on Tuesday. Big flights into safe-haven, USD JPY, dumping riskier assets such as stocks. It could even start to heavily drag down over commodity markets such as; Copper and perhaps even Gold starts to take a hit as markets rather have cash. Gold has been a long-time safe-haven, however, with these types of conditions anything can happen.



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