Oil—less of an impact than normal

Posted by: Paul Donovan

28 Apr 2020

Daily update

  • The price of oil is sliding again, on worries about storage capacity. Normally, a lower oil price disproportionately boosts consumer sentiment. However, the storage problem is due to reduced oil demand—if you are not putting petrol in your car, you will not notice the price. The good news is that the money saved by not buying petrol now may be spent later in the economic bounceback.
  • Non-oil companies that are still operating will get a profit boost from the oil price move, as their energy and transport costs should fall. If the excess oil in storage keeps prices lower for longer that could also help profit margins as the economy recovers.
  • Sweden's Riksbank gives its policy decision today. The market is not expecting a return to the negative interest rate tax (increasing taxes in a pandemic is not generally considered a good idea).
  • Various sentiment surveys are due today (France, the UK, and the US). No one rushes to answer a survey in a pandemic. If they do answer, they are unlikely to be representative. If they do answer, media rather than reality is likely to influence the responses. Conducting sentiment surveys in a pandemic is what economists call a "misallocation of resources".

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