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After two record-breaking weekly gains for markets, traders went into the Easter weekend optimistic. And over the weekend, it looked like the world's oil producers delivered another piece of good news.
The OPEC oil cartel and other oil-producing countries, mainly Russia, spent days last week in virtual meetings and phone calls, hashing out a deal to cut oil production and stop oil's 60% price drop.
Under the so-called OPEC+ umbrella, the group finally agreed to a deal over the weekend. Oil futures shot up but fell back overnight.
By the time markets opened this morning, the Dow, S&P 500, and the Russel 2000 all opened in the red. Oil opened up but is falling as I'm writing this.
That's because there's a huge reality gap between what the oil deal needed to do and what it actually entails.
Look, with 3 billion people around the world now shut in because of the coronavirus pandemic, global oil demand is down by an estimated 30 million barrels a day.
Headlines will have you believe the OPEC+ oil deal will see oil-producing countries cut production by 10 million barrels a day. That still leaves 20 million barrels a day of oversupply.
And the details of the deal are actually even worse. The cuts only amount to 9.7 million barrels a day, and 3 million of those are not a cut in supply but a promise from the International Energy Agency (IEA) that its member countries will buy more oil to replenish their national reserves.
As analysts at Goldman Sachs put it, the deal is "too little too late." It might stave off an even deeper crisis, but it won't save oil companies that were already struggling.
This disappointment is setting the markets up for some more volatility this week, as the Q1 earnings seasons starts. JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC) both report their numbers tomorrow. Even with all the stimulus that we've seen – which has given us the biggest weeks for markets since 1938 – this could be when the other shoe drops.
We simply do not have all the economic data to know the depth and length of the economic crisis we're in. The earnings from the big banks, as well as tomorrow's import and export numbers from China, and their GDP report on Friday, will give us more information on how deep of a hole we're in. That will set the tone for markets going forward.
About the Author
D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.