Oil Sentiment has Conflicting Signals from IEA and Saudi Aramco Stock Price
In our insight on May 14, 2020, we spoke about one of our most closely tracked news-flow sentiments on Oil News. Over the last few months as Coronavirus became a global pandemic, concerns started rising on how much crude production the global markets can absorb. As we had highlighted, the Oil Sentiment is having its ‘break out’ moment and 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?
We looked at a few other possible signals on what may happen next in the crude oil market. But the most interesting were two data points which are giving us conflicting signals on the outlook for crude. The first is Saudi Aramco Stock price. If you recall our insight on April 21, 2020, we had made a forecast that despite the Monday, 20th April turmoil in crude oil prices, the broader outlook was not looking that bad. One of the supporting arguments for this was that the biggest and most profitable Oil Company’s stock price was largely doing fine.
How has the Saudi Aramco stock price done in last few weeks. If we see the stock price chart below, it is reflecting hardly any optimism. What could be the reasons for this? The first and most direct explanation is that the investors see that global oil demand is still a concern. The other could be that there is no pricing power with the producers and there is no consensus among major producers on their respective production quotas. So, does the Saudi Aramco stock price movement tell us that there is a possibility of pick-up in demand? No, not really!
Fig. 1: Saudi Aramco Stock Price over last one month (Source: Google)
The second data point is International Energy Agency (IEA) saying a couple of days ago that the outlook for global oil markets has improved. This should be seen as a positive though there are still concerns that while the IEA sees signs of consumption improving, demand recovery could only be gradual. But, this is a positive data point on oil demand and prices after a disastrous April. Effectively, both these data points (Saudi Aramco stock price and IEA demand commentary) are in conflict with each other and only one can then be correct indication for what will happen in this market in the coming weeks.
Nevertheless, Crude has left the “Negative Price” way behind and despite uncertainties, the prices have staged a smart recovery. But have they run ahead of fundamentals now? Only time will tell. While we don’t forecast the oil sentiment trajectory, we will keep a close watch on EMAlpha’s Oil Sentiment and keep you posted on what it indicates on global crude prices. We are entering an exciting territory for sure.
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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