The oil price war between Russia and Saudi Arabia sent crude into a free fall before it bounced 23% in Thursday’s trading session, which may just represent a dead cat bounce rather than a real rally. Either way, for investors who can’t stand this kind of queasy volatility, it may help to get less concentrated exposure to oil, but still, get diversification via commodities through the WisdomTree Continuous Commodity Index Fund (GCC).
GCC seeks to reflect the performance of the index, over time, less the expenses of the fund and the master fund’s overall operations. The master fund invests in a portfolio of index commodities, as well as holding cash and United States Treasury securities and other high credit quality short-term fixed income securities for deposit with the master fund’s Commodity Broker as margin.
The Continuous Commodity Total Return Index is a broad-based commodity index that reflects the price movement of 17 exchange-traded futures contracts. By holding cash and safe haven government debt, investors also have a safety component built-in since commodities are typically uncorrelated with equities.
That hasn’t been the case with oil, however, which has been following equities down as the coronavirus contagion continues to affect the capital markets. However, U.S. President Donald Trump said if Russia and Saudi Arabia are unable to come to terms, the U.S. could intervene.
“We have a lot of power over the situation and we’re trying to find some kind of medium ground,” Trump said during a White House press conference on Thursday. “They’re in a fight on price, they’re in a fight on output, and at the appropriate time I’ll get involved.”
Meanwhile, stemming the tide of the coronavirus effects will continue to be a prime concern as the U.S. continues to mull over various stimulus responses. Oil could gain with renewed hope that more demand would follow in tow.
“Our current balances suggest that prices will have to drop further, likely to $10 per barrel, or even below in the worst case, to trigger production shutdowns,” said Rystad senior oil markets analyst Paola Rodriguez-Masiu said.
Still, the combination of the coronavirus and price wars could still weigh heavily on oil prices moving forward.
“Looking ahead, the path of least resistance is decidedly lower right now and the lower-for-longer dynamic appears to be one that is here to stay for a while, given the clearly bearish fundamentals pointing to a likely longstanding surplus in the global oil markets,” said Tom Essaye, co-founder of The Sevens Report.
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