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
For more EMAlphainsights on Emerging Markets, please visit https://emalpha.com/insights/. To know how you can use EMAlpha’s unstructured data on Emerging Markets for better investment decisions, please send us an email at [email protected].
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.
This insight article is provided for informational purposes only. The information included in this article should not be used as the sole basis for making a decision as to whether or not to invest in any particular security. In making an investment decision, you must rely on your own examination of the securities and the terms of the offering. You should not construe the contents of these materials as legal, tax, investment or other advice, or a recommendation to purchase or sell any particular security. The information included in this article is based upon information reasonably available to EMAlpha as of the date noted herein. Furthermore, the information included in this site has been obtained from sources that EMAlpha believes to be reliable; however, these sources cannot be guaranteed as to their accuracy or completeness. Information contained in this insight article does not purport to be complete, nor does EMAlpha undertake any duty to update the information set forth herein. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information contained herein, by EMAlpha, its members, partners or employees, and no liability is accepted by such persons for the accuracy or completeness of any such information. This article contains certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential,” “outlook,” “forecast,” “plan” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of certain investment strategy. All are subject to various factors, including, but not limited to, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting the operations of the companies identified herein, any or all of which could cause actual results to differ materially from projected results.