Free Issue No. 12 of 04.06.2020
Although the historically unique turbulence of the month of April is behind us and the oil price has made a slightly reassuring recovery, the latter is still on shaky ground in the short term. Again, it will largely depend on the timing and fundamentals of the economic recovery. At the beginning of the year, global oil production was in the region of 100 million barrels per day. Due to the global Corona shutdown, current daily consumption is in the range of 30 to 50 million barrels.The production cuts enacted in April are not yet enough to make up the difference... with emphasis on " not yet"! Of course, forecasting remains difficult here as well.However, we assume that the oil price will continue to recover on the somewhat longer time axis, even if interim fluctuation dips, e.g.caused by the "skirmish" between the US and China.The fact is, however, that the economies of many countries are starting to pick up again, which means that demand for oil should also rise in small steps. In China, the largest oil importer, demand is said to have already reached pre-crisis levels. The next OPEC meeting on June 9 and 10 is likely to be exciting. If so, it is even conceivable that the existing supply surplus could turn into a deficit as early as August. Further price increases would be the consequence. However, we are not there yet, as the corona virus is still wreaking havoc in certain regions (e.g. Brazil). The situation remains unpredictable for the time being.
The rather high divergence between the oil price and the stock market is also interesting and worth noting at the moment. Until mid-2019, the chart lines of the major stock indices and those of the oil price painted a broadly parallel picture. This is logical in itself, because economic prosperity ensures good demand for oil. However, for the first time in the summer of 2019 and especially since the beginning of 2020, these two trend lines have diverged markedly. While oil prices have tracked the global economic slump, equity markets seem to have ignored almost everything except the Corona crash in March.In the short term, we believe it is more likely that the equity market will correct and the divergence will even out along the way, whereby the oil price may also fall back into the USD 25 (WTI) range once again.In the medium to longer term, we remain bullish on the oil price and continue to see a very good entry opportunity at the current price level of the oil ETF.
We continue to set our price target at CHF 28!
ETF UBS CMCI OIL SF is listed on the SIX Swiss Exchange under the symbol OILCHA, the security number is 11,601,535, last price approx. CHF 16.80.