Wednesday Briefs – 22 April 2020

A weekly commentary on current events. Follow populyst to receive notification.

This week: Negative oil, Commodity trading; Coronavirus – Sweden; Coronavirus – New York.

Please contact us for data or other information concerning the views below.

Negative Oil, Commodity Trading

May oil futures settled at a negative $37.63 on Monday before rebounding and expiring at a positive $10.01 yesterday. This unprecedented action was due to the March-April economic stoppage and subsequent oil glut. Because capacity in storage tanks fell rapidly, holders of futures had no ability to take delivery in May and could only unwind positions by giving them away and then some.

Many of these holders are financial traders with no operating involvement in the oil industry, which raises the long question on whether such actors should trade commodities in the first place. On the plus side, they bring liquidity to the market. On the other hand, the sizes of their funds may distort near-term prices to such an extent that they no longer represent actual supply and demand of the underlying commodities.

This question gains critical importance for commodities that are vital and important in poorer countries, as for example with agricultural commodities. Perhaps some regulation for futures with nearer maturities will result from this experience. The liquidity brought by financial players may not be needed in the near-term.

Parenthetically, we note that some commodity traders seem too active on LinkedIn and Twitter, promoting macro and commodity-specific views that are ostensibly aligned with their financial interests, without at the same time disclosing their book positions. In our view, this is objectionable in proportional measure to each trader’s audience and reach.

Coronavirus – Sweden

Sweden has gone its own way in not implementing a lockdown and shelter in place policy to fight the virus. This approach is akin to a herd immunity strategy by which the reach of the virus within the population grows faster but the resulting immunity forestalls or mitigates the onset of future waves in the fall of this year or winter of next year.

So far compared to other Nordic countries (Denmark, Finland, Norway), the numbers for Sweden look marginally worse for confirmed cases and significantly worse for virus deaths. However, they seem to be in the middle of the pack when compared to the rest of Europe, as seen in this chart.

Screen Shot 2020-04-19 at 9.55.35 AM

We will not be able to fully evaluate the merit of this approach until the virus has passed. It is a bet on the unknown that other governments were unwilling to make. But those governments made a bet on another unknown, which is the scale of a second wave in the absence of herd immunity. Faced with these two bets, it is understandable that one would choose the one that gives more time, whether that proves to be the right decision or not.

Coronavirus – New York

Conditions in New York continue to improve, if we measure by the numbers of deaths and of hospitalizations. Statewide daily deaths have declined from a plateau of nearly 800 around April 10 to fewer than 500 now. In New York City, daily deaths are now close to 300*.

Total statewide hospitalizations peaked at 18,825 on April 13 and are now below 16,000. New confirmed cases are also down but they are correlated to the number of daily tests (see chart) and are still unreliable as a proxy for the whole picture. The rate of positives in New York State remains very high at 39%, or twice the national average.

Screen Shot 2020-04-21 at 6.12.07 PM

* The New York Times disputes these figures and says that excess deaths (deaths in 2020 vs. an average of previous years) show Covid-19 deaths to be higher than official figures. The Financial Times has similar research with the same conclusion for the United Kingdom.

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