[Good Morning Stock Market] First Ever Negative Oil Prices... "Inevitable Impact on the Stock Market"

[Asia Economy Reporter Oh Ju-yeon] International oil prices recorded negative values for the first time in history, causing the U.S. stock market to decline on the 20th (local time). On this day, May delivery West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange (NYMEX) closed at -$37.63 per barrel, plunging 305% compared to the closing price of $18.27 on the 17th. As a result, the Dow Jones Industrial Average fell 2.5% from the previous trading day to close at 23,650.44, while the S&P 500 and Nasdaq dropped 1.8% and 1%, respectively, ending at 2,823.16 and 8,560.73. Although there is a high possibility that this will affect the domestic stock market, analyses suggest that the adjustment will be limited.

[Image source=Yonhap News]

◆ Sangyoung Seo, Researcher at Kiwoom Securities = The U.S. stock market started lower due to the sharp drop in international oil prices and concerns over economic slowdown but managed to turn upward on expectations of economic reopening. However, as the May WTI contract plunged into unprecedented negative territory, panic ensued, causing the market to fall again. Concerns over Nieman Marcus filing for bankruptcy protection led to weakness in department stores and small-to-mid cap stocks, which was also negative. Nonetheless, unlike the oil market, panic was limited as some tech stocks and the biotech sector showed strength. Notably, the rise in the VIX index was also limited.

What is noteworthy is that while the May contract recorded an unprecedented negative price, the June contract stood at $21, July at $27, August at $29, and September at $30, with the spreads between each monthly contract being less than $1, indicating stability. This suggests that the demand slump caused by COVID-19 may continue until July, but economic reopening is expected to bring stability from August onward.

Therefore, although the oil market may collapse in the short term and concerns may spread, it is expected to stabilize with economic reopening after the third quarter, limiting the impact on the stock market. The Korean stock market is expected to adjust but is unlikely to experience a sharp decline as in the past.

◆ Inhwan Ha, Researcher at Meritz Securities = WTI plunged again, with the May contract turning negative. Although I am a stock market analyst, I monitor oil price trends for two reasons.

First, the current stock market rebound is not accompanied by a recovery in the real economy, which is confirmed by the fact that international oil prices are falling.

Second, it is due to concerns about inflation. The current stock market rebound may be due to the effects of monetary policy rather than a recovery in the real economy, and strong liquidity measures such as zero interest rates and unlimited quantitative easing could lead to inflation in the future. However, the decline in oil prices helps to dispel inflation concerns, which is the second reason I monitor oil price trends.

Where is the bottom for oil prices? Currently, the price difference between the June 20 expiration contract (next-month contract) and the May 20 expiration contract (near-month contract) for WTI exceeds $30. This price difference is extremely unusual, and the only comparable case of Super Contango was in early 2009. Because this price is exceptionally unusual, it may need to be viewed differently from 2009, but in 2009, Super Contango was a signal indicating the bottom of oil prices. However, it is important to note that it took 1 to 2 months to rebound from the bottom.

This content was produced with the assistance of AI translation services.