Issued on: 20/04/2020 – 21:09Modified: 20/04/2020 – 21:09
Oil futures plunged below zero on Monday, the latest never-before-seen number to come out of the economic coma caused by the coronavirus pandemic.
Stocks and Treasury yields also dropped on Wall Street, with the S&P 500 down 1.8%, but the markets most dramatic action by far was in oil, where the cost to have a barrel of US crude delivered in May plummeted to negative $37.63. It was at roughly $60 at the start of the year.
Traders are still paying $20.43 for a barrel of US oil to be delivered in June, which analysts consider to be closer to the “true” price of oil. Crude to be delivered next month, meanwhile, is running up against a stark problem: traders are running out of places to keep it, with storage tanks close to full amid a collapse in demand as factories, automobiles and airplanes sit idle around the world.
Tanks at a key energy hub in Oklahoma could hit their limits within three weeks, according to Chris Midgley, head of analytics at S&P Global Platts. Because of that, traders are willing to pay others to take that oil for delivery in May off their hands, so long as they also take the burden of figuring out where to keep it.
“Almost by definition, crude oil has never fallen more than 100%, which is what happened today,” said Dave Ernsberger, global head of pricing and market insight at S&P Global Platts.
“I dont think any of us can really believe what we saw today,” he said. “This kind of rewrites the economics of oil trading.”
Also exacerbating the volatility is that few traders are buying and selling US oil to be delivered in May. They wont even have the opportunity to do so after Tuesday, when trading contracts for it expire and the earliest delivery theyll be able to buy is for June.
Brent crude, the international standard, fell nearly 9% to $25.57 per barrel.
A dismal 2020
The plunge in oil sent energy stocks in the S&P 500 to a 3.7% loss, the latest in a dismal 2020 that has caused their prices to nearly halve.
Halliburton lurched between gains and sharp losses, even though it reported stronger results for the first three months of 2020 than analysts expected. The oilfield engineering company said that the pandemic has created so much turmoil in the industry that it “cannot reasonably estimate” how long the hit will last. It expects a further decline in revenue and profitability for the rest of 2020, particularly in North America.
The S&P 500 fell 51.40 points to 2,823.16. The Dow Jones Industrial Average lost 592.05 points, or 2.4%, to 23,650.44, and the Nasdaq dropped 89.41, or 1%, to 8,560.73.
The losses ate into some of the big gains indexes have made since late March, driven lately by investors anticipating the potential reopening of businesses as infections level off in hard-hit areas. Pessimists have called the rally overdone, pointing to the severe economic pain sweeping the world and continued uncertainty about how long it will last.
“The government can declare whatever they want in terms of encouraging people to get out and do stuff,” said Willie Delwiche, investment strategist at Baird. “Whether or not broad swaths of society do that remains to be seen. Its going to take seeing people start to get out and do stuff again. That will be the necessary positive development, not just declaring getting things open.”
New stay-at-home economy
More gains from companies that are winners in the new stay-at-home economy helped limit the markets losses. Netflix jumped 3.4% to set another record as people shut in at home look to fill their time. Amazon added 0.8%.
In Asia, Tokyos Nikkei 225 fell 1.1%. The Hang Seng index in Hong Kong lost 0.2%, and South Koreas Kospi fell 0.8%.
European markets were modestly higher. The German DAX was up 0.5%, the French CAC 40 was up 0.7% and the FTSE 100 in London gained 0.7%.
In a sign of continued caution in the market, TrRead More – Source