Main menu

Pages

Hot News

US oil prices plunge below zero amid coronavirus pandemic

US oil prices plunge below zero amid coronavirus pandemic

Oil prices close below zero in unprecedented collapse

Oil prices in the US plunged to below zero on Monday as demand collapsed amid the coronavirus pandemic.

A barrel of crude oil in New York dropped from $18.27 (€16.80) on Friday evening to negative $37.63 (€34) on Monday. At the start of the year, a barrel of oil was $60 (€55) for comparison.


The international standard Brent Crude was still trading at $26 (€24).

The price of US crude oil has never fallen below $10 but several analysts say the situation should improve.

The decline was in part due to the end of trading for May delivery. Investors sought to get rid of barrels of crude oil left due to an unprecedented drop in demand.

"It is a bit misleading to focus on the May contract," said Matt Smith, an oil market expert for ClipperData told AFP. "There are many more exchanges on the barrel for delivery in June".

US oil barrels for June delivery also dropped, but not as dramatically, falling 18% on Monday to finish at $20.43 (€18.81).

The oil market has been experiencing sharp decreases for weeks due to travel restrictions in many countries. As governments have stopped economic activity in their countries, demand has dropped significantly.

The market was also inundated with low-cost oil after Saudi Arabia launched a price war with Russia.

Oil prices close below zero in unprecedented collapse

The two countries put an end to the dispute earlier this month by agreeing to reduce production by nearly 10 million barrels per day to stimulate markets.

But prices continued to plummet when it became clear that the promised reductions would not be enough to offset the collapse in demand.

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. It’s 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 market’s 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, Tokyo’s Nikkei 225 fell 1.1%. The Hang Seng index in Hong Kong lost 0.2%, and South Korea’s 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, Treasury yields remained extremely low. The yield on the 10-year Treasury slipped to 0.62% from 0.65% late Friday.

Stocks have been on a general upward swing recently, and the S&P 500 just closed out its first back-to-back weekly gain since the market began selling off in February. Promises of massive aid for the economy and markets by the Federal Reserve and US government ignited the rally, which sent the S&P 500 up as much as 28.5% from a low on March 23.

More recently, countries around the world have tentatively eased up on business-shutdown restrictions put in place to slow the spread of the virus.

But health experts warn the pandemic is far from over and new flareups could ignite if governments rush to allow “normal” life to return prematurely. The S&P 500 remains nearly 17% below its record high as millions more US workers file for unemployment every week amid the shutdowns.

Many analysts also warn that some of the the recent rally for stocks is due to expectations the economy will pivot quickly and rebound sharply once economic quarantines are lifted. Those could prove to be too optimistic.

There’s still uncertainty surrounding the reopening of the economy,” said Julian Emanuel, chief equity and derivatives strategist at BTIG. “Come fall, are we going to be back on airplanes? Are we going to go out and eat?”

reactions

Comments

table of contents title