The bottle neck of the oil market, panic and fear are back

What happened yesterday in the oil market can be explained by the transition to a new reality in the awareness of what is happening and the boundaries of the possible. Fear was firmly entrenched in the hearts and minds of traders and completely clouded their minds. However, according to the old expression of traders, now is just the moment when you need to go against the herd: buy when everyone is scared, and sell when greed reigns in the market. Or a modification of this expression from Buffett: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”.

The fall of May WTI contracts on Monday to - $ 50 per barrel settled a feeling of deep uncertainty about tomorrow. But what if this happens again next month? As a result, a mass exodus of alarmists from the oil market began. It's hard to blame them, and easy to understand.

We still think that current situation is a typical bottleneck problem. Yes, here and now the demand has drastically decreased, here and now many storage facilities are full, producers continue to pump and pump pre-crisis volumes of oil. This narrow neck is very limited in time and will most likely be calculated in days. Since May, the OPEC + deal comes into force, US oil producers are actively curtailing their activities, but the economies of most countries, on the contrary, will gradually be un-paused. Seas and oceans are plowed by floating oil storage facilities with storage potentials of up to 2 billion barrels, of which 250-300 million are so far filled at best. All of this together will lead to a total change in market situation. But, of course, only those who can seep through the bottleneck of the oil market will be able to capitalize on this.

So we continue to hold purchases of oil and believe that the risks are actually greatly exaggerated and generally incorrectly assessed by the markets because of their emotional state (fear and panic).

Recall also that we do not sit in one position, but have a whole set of them. While losses are still accumulating in oil, good profits are generated, for example, by sales of the Russian ruble, as well as sales on the US stock market and EURGBP (all these positions were mentioned on Monday in a week in a glance report). So fear and panic are reliable helpers who help not only to compensate losses from what is happening on the oil market, but also to earn in general. Current losses in oil for us so far are simply profits postponed in time.

Perhaps the last thing that prevents the stock market from collapsing into the abyss is the incessant flow of money from the Central Banks. Monetary authorities of the G7 countries only in March bought assets worth $ 1.4 trillion in the framework of quantitative easing programs. But again, this process cannot last forever.

Another reason for the growth of fear was the information that the leader of North Korea is on the verge of death. And this means a possible change of power in the country with a very unobvious result of this.

Overall our positions are as follows: buy EURGBP, buy USDRUB, sell the US stock market and buy oil. Additional positions for today are buy USDCAD today and look for opportunities to buy gold (but here we act without fanaticism and will use reasonable stops).