Is Oil Sentiment Telling Us that Demand Recovery has Begun and How Long it Will Take?
One of the most closely tracked sentiments at EMAlpha is on Oil. This is not just important in assessing how the impact of the Coronavirus pandemic is playing out, but also for the confidence people have on the recovery of global manufacturing and transportation. All of this is closely linked to global energy demand and price of crude oil. The short-term price movement in crude depends on near term outlook for Oil, which is influenced heavily by the news flow sentiment.
Over the last few months as Coronavirus became a global pandemic and much more serious than what the present generation has ever seen, concerns started rising on how much crude production the global markets can absorb. If we mostly go by the prevailing sentiment, the demand is unlikely to pick up anytime soon. That is bad news for Crude Oil price too and that is bad news for the Global Markets. The only thing we were hoping for is a turnaround in news sentiment but let us see how long that takes.
The month of April was particularly bad for the global crude oil market and the volatility was unprecedented with prices falling below ZERO, for the first time in history. However, the question now is whether things are changing? As you can see in the following chart, the Oil Sentiment is having its ‘break out’ moment. While for the last week, the sentiment has been more positive than most days since the beginning of March (it is in top 10 percentile consistently, with only a couple of exceptions), the oil news sentiment has scaled its new peak on 11th May 2020. This is an entirely different picture from what we had seen in the month of April.
Fig. 1: Daily Oil related News Sentiment
Is this change in oil news sentiment telling us that we are past the worst of Coronavirus crisis and things will get better from now on? Or is this just a false hope as people have gotten tired of too much bad news. While we don’t forecast the oil sentiment trajectory, we think that it is possible that at least for this phase of Coronavirus pandemic spread, things have started to look up. Many countries, and even the worst affected ones, have started to come out of lockdown and the two largest economies of the world (the United States and China) are certainly at a stage where they are worried less about Coronavirus and more about economic revival. We will keep a close watch on EMAlpha’s Oil Sentiment and keep you posted if this positive momentum in Oil Sentiment is indicating Solid Turnaround or just giving us False Hopes.
EM Alpha LLC
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EMAlpha, a data analytics and investment management firm focused on making Emerging Markets (EMs) accessible to global investors and unlocking EM investing using machines. EMAlpha’s focus is on Unstructured Data as the EMs are particularly susceptible to swings in news flow driven investor sentiment. We use thoroughly researched machine learning tools to track evolving sentiment specifically towards EMs and EMAlpha pays special attention to the timely measurement of news sentiment for investors as these markets can be finicky and sentiment can be capricious.Our team members have deep expertise in research and trading in multiple Emerging Markets and EMAlpha’s collaborative approach to combining machine learning tools with a fundamental approach help us understand these markets better.
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