SALT LAKE CITY — Continued unpredictability within U.S. financial markets was highlighted early this week with the stunning cratering in crude oil futures, which saw West Texas Intermediate futures close at negative $37.63 per barrel on Monday — the lowest closing price in history.
Despite the instability of the past several weeks, a local analyst said that there is light ahead that could signal a possible economic breakthrough in the not-so-distant future.
“This is a health care crisis that’s created an economic panic,” said Gary Gygi, president of Utah County-based Gygi Capital Management. “If we were to compare (it to) the Great Recession, then that was a financial crisis as a result of a real estate bubble that popped.”
In that case, he said, it took nearly a decade for the financial system to heal. This time, it seems unlikely that the recovery will mimic the long, drawn-out experience of that financial crisis, he added.
“There are a lot of thoughts from a lot of people, myself being one of those, that the economic rebound will be pretty robust,” Gygi said. “The reason that a number of us think that is the stock market was at all-time highs before that pandemic started. The economy was quite strong, the stock market was quite strong. And then the pandemic hit (and) shut it all down.”
He said based on the fundamentals supporting the strength of the economy, those principles should be able to reestablish themselves as the country begins to reopen businesses and progress toward a post-pandemic society.
“I don’t think it’s going to take a long time for the market to recover. I don’t think it’ll be as quick as the drop. The drop happened incredibly quick — within 10 to 14 days, you had a 25% to 30% drop in the market,” Gygi said. “I don’t think anyone expects the market to recover in 10 to 14 days after the volatility calms down. But I do think you’ve had an incredibly strong rebound in the market over the last 10 days, close to a 50% recovery from the drop of the market to the low.”
Meanwhile, a historic day for crude oil futures saw the price for per barrel fall deep into negative territory for June shares. While the valley-like dip was a first, futures for July and August were above $20 a barrel. Gygi said the increasing prices indicate an expectation for traders that oil prices should move a little higher in the summer months.
I don’t think anyone expects the market to recover in 10 to 14 days after the volatility calms down. But I do think you’ve had an incredibly strong rebound in the market over the last 10 days, close to a 50% recovery from the drop of the market to the low.
–Gary Gygi, president Gygi Capital Management
“Most investors think that the price of oil is going to go back up. We have a glut of oil, meaning we have an awful lot of oil,” he said. “People aren’t driving their cars, businesses are shuttered in so we as a society are using far less crude in order to run our businesses (and) drive our cars. There’s not nearly as much demand and we have a lot of oil. That’s why the price of oil is so cheap.”
He attributed the steep decline in petroleum prices to a conflict between two top global oil producers.
“Russia and Saudi Arabia kind of had a temper tantrum and were trying to put pressure on the other and it hurt shale oil producers in the U.S. because it forces the price of oil down,” he said. Currently, Saudi Arabia and Russia have agreed to cut oil production, which should drive the price a bit higher, he said.
Even still, with so few people driving and much less demand for gasoline, the price at the pump is likely to remain lower than usual for this time of year, he added.
He said barring something unforeseen, the chances for economy recovery look relatively promising. There are a lot of reasons to think that if the economy starts to reemerge and if there isn’t a second wave of the pandemic, things could improve greatly, he said.
“Assuming that people continue to maintain social distance, wear masks and the like, as the economy opens up then maybe we don’t have another resurgence of the coronavirus,” Gygi said.