The oil market has gone into meltdown this week, with futures contracts for US WTI (West Texas Intermediate) falling below zero. There's a lot of oil out there with nowhere to go due to falling demand as the world remains in lockdown and movement is restricted. The price of oil includes the cost of transporting and storing it, which may have exceeded the economic value of the commodity at present.

While WTI oil for delivery this month emerged from negative territory yesterday after trading at its lowest ever, contracts for June fell sharply. They weren't alone; benchmark Brent crude lost more than a quarter of its value yesterday, falling below $20 a barrel.

On the JSE, volatility on oil markets sent Sasol sharply lower, before the stock regained its composure. MTN rose 3.1% after slumping 18% on Monday. Nigeria, its biggest market, relies on oil to fuel its economy.

While there's concern that other commodities could follow suit due to weakening demand, BHP has maintained its production guidance for now.

Meanwhile, Wescoal has become the second JSE-listed coal producer to receive force majeure letters from Eskom - despite the power utility asking it last month to maintain supplies to its power stations.

Ingham Analytics issues an intriguingly titled note "Whose telling fibs, equity or credit?". Andrew Kinsey highlights the links between the equity and credit markets at this volatile time when there is substantial dislocation between the valuations found in fixed income, equity and credit markets. Interested in Argentinian dollar-denominated bonds? You'd be surprised to find out where they are being priced. What about South Africa, is default possible? Follow this link for some answers.

The Ingham Analytics note on SA banks entitled "A negative endowment" says that forecasting earnings at this fluid and uncertain time in relation to Covid-19 is impossible. Balance sheet management, they say, is of immediate priority. The phenomenon of the negative endowment effect on banks' capital and funding is explained. Do you buy beaten down bank shares or stay clear? What about if you are a trader, is volatility advantageous? You can access the report here.

Also in today's newsletter, updates from Liberty Holdings and UK wealth manager Quilter. And Stenprop says its multi-let industrial properties in the UK remain in demand.

Stay safe and try to remain sane!

Stephen Gunnion

Managing Editor, InceConnect

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