Investors in the Commodity markets finally had some reason to celebrate as Crude oil prices shot up by more than 25% in a single day. This rise comes after US President, Donald Trump’s announcement that Russia and Saudi Arabia might be reducing their crude oil production collectively by ten million barrels per day.
…..Could be as high as 15 Million Barrels. Good (GREAT) news for everyone!
— Donald J. Trump (@realDonaldTrump) April 2, 2020
However, there has been no confirmation from either the Saudis or the Russians that whether they have agreed.
Production cut might be complicated; however Dow and S&P shine
Russia almost immediately announced that there has been no confirmation regarding a production cut. And Saudi Arabia has called for an OPEC meeting that will most likely take place sometime next week.
Despite all these technicalities, the stock markets rejoiced:
- The benchmark Dow Jones Industries Industrial Average Index (DJIA) is up by 469.93 points and stands at 21,413.44.
- The broader S&P 500 Index is up by 2.3%.
- The tech-rich NASDAQ Composite Index is up by 1.72%.
Stocks in focus:
- Exxon Mobil Corporation made a 7.65% jump.
- Chevron Corporation rose by 11.03%.
- Coca-Cola rose by 4.34%.
This rise in Wall Street comes after days of downward movement. It is obvious that traders would look at profit booking now, which will lead to a downward correction soon. Moreover, the uncertainty regarding a production cut might quickly trim down the Dow’s gains.
Logistics regarding a ten million barrel production might be more complicated than it appears. Let us suppose that both Russia and Saudi Arabia agree to it; they would each require to cut five million barrels of production per day. That is equivalent to a 50% production cut. Nations that have a significant component of Crude oil contributing to their GDP might not easily opt for a fifty percent production. Much remains to be seen as the OPEC nations discuss possible strategies next week.
A lot also depends on the kind of measures the US Government takes on combating the COVID-19 pandemic. The US might even resort to production cuts of its own.
More than 6.6 million people have filed the unemployment report this week. The measures that the US monetary panels take to bring back the economy on its feet will be closely followed by investors worldwide.
