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Spillover

Yesterday we said the oil industry couldn’t afford too many more days like Monday. As the afternoon and evening progressed, it became apparent that many might not survive the consequences of those 24 hours alone.

The story of WTI prices’ historic move into negative territory isn’t solely a technical tale of short-term storage problems. Today’s slump in June contracts, and the accompanying sell-off for Brent crude, show the problems are more widespread, if not quite as apocalyptic as price activity overnight suggested.

For wealth managers who have long since abandoned the commodity complex – oil major exposure in equity income funds aside – it’s necessary to zoom out further still. The repercussions for portfolio managers may come in other areas.

Inevitably, those looking at second-order effects have pointed to ETFs as particular points of stress. The need to roll exposures when contracts expire could set up such trackers for long periods of pain. Some market participants think the CME will effectively have to intervene to prevent losses from spiralling.

That said, there’s little sign yet of the spillover effects seen last month when bond markets appeared on the verge of suffering their own existential crisis. Those strains seemingly prompted investors to liquidate all kinds of holdings in a dash for cash.

Oil ETFs aren't as fundamental to market plumbing as fixed income positions. Price activity across major asset classes today isn’t particularly pleasant. But it looks more like another sombre acknowledgement of the deflationary pressures facing the global economy than a suggestion that negative oil prices have changed everything for investors