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At the end of October, the market sentiment suddenly changed, and the international crude oil price plummeted.
The change of market sentiment is closely related to the out of control epidemic situation in Europe and America! In particular, the European epidemic data have reached new highs, leading to some countries having to “close the city” again: at present, Spain, Germany and France have announced the closure of the city, and the United Kingdom has plans to implement the blockade measures next week. However, the market has long expected a second collapse in global crude oil demand.
In addition, the uncertainty of the US election is also an important factor in the recent withdrawal of funds from the market. Because there are great differences in the economic policies, epidemic prevention and control, and energy policies of the United States, who is elected may affect the overall macro situation and energy price trend in the future. The current US election is at a critical moment, and it is undoubtedly wise for funds to withdraw from the crude oil market. After all, the drastic financial market fluctuations were still fresh in the last trump election.
Market participants believe that the crude oil policies of Biden and trump on Iran and Venezuela are also very different: after trump is elected, the sanctions on these two countries will not be lifted, so the crude oil production and export volume of these two countries will remain at a very low level, so as not to affect the supply. However, if Biden is elected, it is likely to relax the sanctions on these two countries, thus increasing crude oil production and bringing a big impact to the market.
Therefore, the current problems faced by the crude oil market are more complex than at any time this year. Not only the US election is a huge variable, but also the fermentation of the epidemic situation is also a huge variable. The crude oil market may face greater volatility and frequency. Therefore, risk control is the primary task. For investors with strategic investment needs, they should actively grasp the absolute low price that may be formed by risk events, especially after Brent oil price falls below $40 / barrel. However, for investors with relatively weak risk tolerance, it is very important to avoid taking part in extreme volatility. They need to wait for “high-risk events” before entering.
Global epidemic situation out of control, worrying demand
After a relatively quiet period of half a year, the global epidemic broke out again, and once again pushed the Brent oil price below $40 / barrel. In fact, the worries on the demand side have not been well resolved in the past half year. On the contrary, the epidemic situation at the end of the year was even worse than that at the beginning of the year. However, after the baptism of the first half of the year, the market already had psychological expectations for this situation, and risk averse or risk neutral investors had already withdrawn from the market, so there was no panic selling.
What is worrying is that the global epidemic situation has been rapidly spreading before the arrival of winter. With the passage of time, the temperature drops, what will happen in the future?
The starting point of the novel coronavirus pneumonia in the second round is Europe, and the spread of the disease is much faster than we think.
Fortunately, some European countries have begun to announce stricter restrictions. Just after Spain declared a second national emergency, France announced a four week national “blockade”, although not as strict as the original measures, but the impact on demand has been obvious. Macron said that the current second wave of epidemic in France is very serious, more difficult and fatal than before, so we must take strong measures to deal with it now, otherwise the medical system will face saturation. He pointed out that mass immunization is not desirable, which means the loss of thousands of lives. Germany may adopt a “Bobo circuit breaker” type blockade, but will allow schools, nurseries and shops to remain open. It can be predicted that if the epidemic situation in Europe continues to expand, there will be more regional blockades.