Oil price goes negative as demand collapses; stocks dip

Oil futures plunged below zero on Monday, the latest never-before-seen number to emerge from 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%, however the market’s most dramatic action by far was in oil, where the cost to have a barrel of U.S. crude delivered in May plummeted to negative $37.63. It was at roughly $60 in the beginning of the year.

Traders remain paying $20.43 for a barrel of U.S. oil to be delivered in June, which analysts consider to be nearer to the “true” price of oil. Crude to be delivered the following month, meanwhile, is running against a stark problem: traders are running out of places to keep it, with storage tanks close to full amid a collapse popular as factories, automobiles and airplanes sit idled around the world.

Tanks at an integral 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 responsibility of figuring out where to keep it.

“Almost by definition, crude oil hasn't fallen a lot more than 100%, which is what happened today,” said Dave Ernsberger, global head of pricing and market insight at S&P Global Platts.

“I don’t think any of us really can believe what we saw today,” he said. “This sort of rewrites the economics of oil trading.”

Also exacerbating the volatility is that few traders are buying and selling U.S. oil to be delivered in-may. They won’t even have the chance to do so after Tuesday, when trading contracts for this expire and the initial delivery they’ll manage to buy is for June.

Brent crude, the international standard, fell nearly 9% to $25.57 per barrel.

The plunge in oil sent energy stocks in the S&P 500 to a 3.7% loss, the latest in a dismal 2020 which has caused their prices to practically halve.

Halliburton lurched between gains and sharp losses, though it reported more powerful results for the first 90 days of 2020 than analysts expected. The oilfield engineering company said that the pandemic has generated so much turmoil in the industry that it “cannot reasonably estimate” how long the hit can last. It expects an additional decline in revenue and profitability for the rest of 2020, particularly in THE UNITED STATES.

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 a few 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 extreme monetary pain sweeping the world and continued uncertainty about how exactly long it will last.

“The federal government can declare whatever they want regarding encouraging persons to get out and do stuff,” said Willie Delwiche, investment strategist at Baird. “Whether or not broad swaths of society do this remains to be seen. It’s likely to take seeing people begin to get out and do stuff again. Which will be the required positive development, not simply declaring getting things open.”

More gains from companies that are winners in the brand new stay-at-home economy helped limit the market’s losses. Netflix jumped 3.4% to set another record as persons shut in in the home turn 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 an indicator of continued caution available 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 an over-all upward swing recently, and the S&P 500 just closed out its first back-to-back weekly gain because the market started out selling off in February. Promises of massive aid for the economy and markets by the Federal Reserve and U.S. government ignited the rally, which sent the S&P 500 up as much as 28.5% from a minimal on March 23.

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

But health authorities warn the pandemic is definately not over and new flareups could ignite if governments rush to allow ”normal” life to return prematurely. The S&P 500 remains practically 17% below its record high as millions more U.S. staff file for unemployment every week amid the shutdowns.

Many analysts also warn that a few of the the recent rally for stocks is due to expectations the economy will pivot quickly and rebound sharply once monetary quarantines are lifted. Those could end up being 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 likely to be back on airplanes? Are we going to venture out and eat?”