Crude oil and associated ETFs are tumbling lower on Monday amid fears of the coronavirus generating fresh lockdowns in Europe, as well as a global stock rout.
West Texas Intermediate crude is down by over 5.23%, trading near $39 a barrel on Monday amid the news, as The United States Oil Fund (USO) sank 4.13% while the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) dropped 4.69% as of nearly 2pm EST.
After a few months of quick demand recovery following the April historic lows, the International Energy Agency now predicts there will be difficulties in generating further recovery of crude demand, projecting the speed of recovery to fall off significantly as most of the ‘’easy gains’’ have already been gleaned from the market.
With the coronavirus still having a dramatic impact on global demand, most analysts and energy executives are more concerned about air travel and jet fuel demand, which represents the greatest mid to long-term threat for oil markets, rather than about gasoline used for car travel. With such a key impact on crude oil demand, industry executives even suggested that refiners should adjust their product output away from jet fuel, if possible at all.
“Covid-19 has just absolutely killed the more inefficient refineries and now they have negative refining margins, so they can’t work at all,” said Bjarne Schieldrop, chief commodities analyst at Swedish financial group SEB recently. “You have refineries going out of business and a huge surplus of capacity.”
There is some positive news out of Libya however. Libya’s National Oil Corporation will commence production from certain fields and exports of crude oil, the company said, as quoted by local media, which noted that it will only begin production at “safe” fields and exports from safe ports, as there has been a significant amount of unrest in the region.
“Our main concern is to start production and exports taking into account the safety of workers and operations, as well as to prevent any attempts to politicize the national oil sector, which means that the NOC is doing its technical and non-political mission to resume operations in the safe areas and technical evaluation is underway in preparation for the start of production and exports,” NOC’s chairman Mustafa Sanalla said.
Currently, oil production in Libya is just 100,000 bpd, a decline from the 1.2 million bpd at the start of the year, just before the blockade in January. But now that Libya will initiate production, there may be fresh developments as the OPEC+ agreement depended on the country’s involuntary contribution to the overall supply curbs.
Short-term traders betting on price increases can look to ETFs like Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (NYSEArca: GUSH). GUSH seeks daily investment results, of 200% of the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
For savvy crude bears looking to use ETFs, there’s the Direxion Daily S&P Oil & Gas Exploration & Production Br 3X ETF (NYSEArca: DRIP).
For more market trends, visit ETF Trends.