How Does Risk Sentiment Impact Oil Prices?

Usually, Oil prices move in tandem with equities and risk flows, but this isn't always the case.
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Giles Coghlan
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Risk Sentiment And The Impact on Oil Prices

Just had a quick question from Paul, asking in the Questions panel, how does risk sentiment impact oil prices? Do oil prices rise when risk sentiment is on?

Yes Paul, that’s exactly right. The general way of looking at oil is that when risk sentiment is positive, when we’re seeing rising equity markets, rising bond yields, rising commodity prices, the thinking is that there’s gonna be increased demand for oil to accomplish, to accompany rather, that corresponding growth. So, there’ll be more demand for oil. That’s why we see oil upside.

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Now, at the moment, we’ve seen this news from Gilead, about the positivity from this remdesvir trial. So, we’re seeing upside in the equity space. You can see here that’s pushing on up higher, and we’re seeing upside in the commodity space.

We’re seeing upside in copper, Brent Crude, and WTI oil. So, this is kind of a good example, Paul. So, I wanted to post this video up to show you that, that is the general rule of thumb. Positive risk sentiment, rising oil prices.

Now, the only thing to be aware of at the moment, Paul, is that oil prices also has its own external factors driving it as well, at the moment. Now, a lot of that has been due to falling demand due to COVID-19. There’s also supply issues with oil. So obviously, if there’s more supply in the market, that’s gonna pressure prices.

There’s also issues to do with storage at the moment. So, at the moment trading with oil, you have to be aware that there’s that double external factor that’s going, that single external factor going on, alongside the normal playbook.

So, this is a good example we’ve seen. Upside in oil, that’s because of the risk on sentiment has come into the market. So, we would expect bids in oil, but we also have to remember the external factor.

So, Paul, hope that helps clarify that question. But it’s a good question, and it’s a good correlation to have in your mind. Positive risk sentiment, which is rising oil, which is positive for the Canadian dollar.

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