Tuesday (US time) will be a big day for markets.
It’s the day the futures contract for US crude oil expires. A figure, which in the previous month closed at minus US$38 a barrel.
This bizarre result meant suppliers were paying people to stockpile oil. A symptom of the decimated levels of demand seen due to lockdowns.
Now, a month later, everyone is wondering if we’ll see a repeat once more…
Not out of the woods yet
As of right now, the price of oil is sitting around US$33 a barrel. A far cry from the strong prices pre-COVID.
Getting to this level though, has taken some extraordinary sacrifices.
Production cuts have been forced on major producers. A result that has helped ease the glut. But the question over demand still remains.
Yes, we’re starting to see economies gradually reopen. That doesn’t mean demand for oil will spring up overnight though. It’s going to take time for things to recover.
And that uncertainty could lead to another panic-induced incident for the futures contract on Tuesday. As one analyst told Reuters:
‘There’s clearly a different feel to the oil market heading into this contract expiry…
‘But will it be enough to avert another panic selling moment? The odds have certainly reduced … there’s a fine line between confidence and complacency and we can only hope that line hasn’t been crossed or early next week it could quickly unravel.’
In other words, things are still on a knife’s edge. Meaning we could potentially see another trading bloodbath.
Even the US Commodity Futures Trading Commission is worried. Putting exchanges and brokers on notice to curb any extreme antics. Even suggesting intervention may be necessary to protect customers.
Needless to say, a bad result will reverberate across markets globally.
Risky times
For investors it’ll be a key metric to keep an eye on.
We could see a fresh wave of panic put pressure on the local share market.
Because of this, investors will need to consider their position carefully. It has never been a more uncertain time for everyone.
So if you’re looking to preserve your wealth, it might be worth considering a more defensive approach. Looking at ways to hold onto your capital in these turbulent conditions.
Jim Rickards continues to warn people about the ongoing risks of this pandemic. Encouraging people to start waking up to the major upheaval that may be coming.
That’s why he suggests building a Financial Pandemic Shelter. A framework that may help you avoid more pain to come. You can read about this strategy in full, for free, right here.
In the meantime, keep watch as Tuesday draws closer.
Whatever happens, it is bound to be eye-opening.
Regards,
Ryan Clarkson-Ledward,
For The Daily Reckoning
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