Futures slide as U.S. crude crashes below zero

(Reuters) – U.S. stock index futures resumed their slide on Tuesday as gloomy quarterly earnings reports and a historic plunge in U.S. crude prices to below zero raised the specter of a deep global recession in the coming months.

Wall Street fell on Monday as WTI crude CLc1 crashed to minus $40 for the first time in history as sweeping restrictions to contain the coronavirus hits oil demand. With nowhere to store the excess capacity, traders fled from contracts that would deliver barrels of oil to them in May.

Exxon Mobil Corp (XOM.N) shed 3.7% in premarket trading and Chevron Corp (CVX.N) slipped 4.0% as the front month May WTI CLc1 contracts continued to trade below $0 on Tuesday. June contracts also fell by $4, signalling more weakness in demand in the face of a near halt in global activity. [O/R]

Other oil-related companies including Apache Corp (APA.N), Halliburton Co (HAL.N), ConocoPhillips (COP.N), Schlumberger (SLB.N) and Occidental Petroleum Corp (OXY.N) tumbled between 6.3% and 11%.

Coca-Cola Co (KO.N) provided the latest evidence of the damage wrought by the pandemic, saying its current-quarter results would take a severe hit from low demand for sodas.

Investors will also keep a close eye on first-quarter earnings from major U.S. companies including Texas Instruments (TXN.O) and Travelers Companies (TRV.N) later in the day.

At 06:29 a.m. EDT, Dow e-minis 1YMcv1 were down 430 points, or 1.83%, S&P 500 e-minis EScv1 were down 39.25 points, or 1.41% and Nasdaq 100 e-minis NQcv1 were down 71.25 points, or 0.82%. SPDR S&P 500 ETFs (SPY.P) were down 1.59%.

The S&P 500 index .SPX closed down 1.79% at 2,823.16​ on Monday.

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Crude costs money again after shock crash, stocks stay in doldrums

SINGAPORE (Reuters) – U.S. crude oil bounced back into positive territory on Tuesday, but a historic plunge below zero rattled investors and triggered the steepest drop in Asian stock markets in a month.

Traders could not give away West Texas Intermediate overnight after a storage squeeze turned holders of the contracts expiring later on Tuesday to forced sellers.

A $39 rise leaves the price for May delivery at $1.38 per barrel and investors unnerved about further dislocation.

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 2%, as did the Nikkei, EuroSTOXX 50 futures and FTSE futures. E-mini futures for the S&P 500 fell 0.5%, while bonds and the dollar rose.

“The (oil) price action was scary,” said Kyle Rodda, market analyst at IG Markets in Melbourne. “It points to the fact that supply and demand has been destroyed.”

The collapse also came together with more signs of a slow and difficult recovery from the COVID-19 pandemic.

The World Health Organization warned that any lifting of lockdowns to contain the spread of the novel coronavirus must be gradual, and if restrictions were to be relaxed too soon, there would be a resurgence of infections.

Hong Kong’s government said it will extend restrictions aimed at tackling the coronavirus for another two weeks.

German Chancellor Angela Merkel cautioned shoppers rushing to just-reopened stores that lockdown measures could be tightened again if fresh cases arise.

And in the United States, a return to work is looking increasingly chaotic, as some states relax lockdowns while others urging caution faced demonstrators demanding an end to restrictions.

“There is little room for complacency,” DBS strategists Philip Wee and Eugene Leow said in a note.

“Weak oil prices and China’s negative growth are reminders that the coronavirus has hurt demand.”

Stock markets in Sydney, Hong Kong and Shanghai fell around 2%.

South Korea’s KOSPI and won dived after CNN reported that North Korean leader Kim Jong Un was gravely ill, but recovered somewhat after South Korean government sources said the story was untrue.

(GRAPHIC: U.S. crude oil’s historic crash below zero – here)

AWASH IN OIL

Monday’s plunge in U.S. crude came as the May contract expiry looms at the end of Tuesday trade.

Stabilization just above zero and June prices at $21 per barrel point to some relief.

International benchmark Brent crude, more readily seaborne than its U.S. counterpart, held around $25.38 per barrel. That is still some 60% under January’s peak, highlighting the disruption to energy consumption and the long road back to solid global growth that underpins oil demand.

“Even as, or if, virus containment measures ease in the coming weeks, the world is going to be awash in oil for some time,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management. “Economies may be slow to get back up and running to a pace that would warrant a strong increase in demand.”

That had bond markets priced for caution and the safe-haven dollar in the ascendancy. The dollar rose against the euro, yen, pound and Antipodean currencies.

It last stood at $0.6300 per Aussie and at a one-and-a-half week high of $1.2400 per pound.

The yield on benchmark 10-year U.S. Treasuries, which falls when prices rise, dropped under 0.6% to 0.5988% in afternoon trade.

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Australia eases restrictions on elective surgeries after slowing coronavirus spread

SYDNEY (Reuters) – Australia will relax restrictions on elective surgeries after slowing the spread of coronavirus, Prime Minister Scott Morrison said on Tuesday.

Australia had in March banned all non-emergency elective surgeries to free-up hospital beds amid expectations of a surge in coronavirus cases.

But in recent days, Australia has seen growth of less than 1% in new coronavirus cases, allowing Canberra to expand the number of surgeries that are permitted.

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Thailand records 19 new coronavirus cases, one new death

BANGKOK (Reuters) – Thailand recorded 19 new coronavirus cases on Tuesday, a senior health official said, the lowest daily tally in more than a month.

A 50-year-old taxi driver accounted for the latest death, said Taweesin Wisanuyothin, a spokesman for the government’s Centre for COVID-19 Situation Administration.

Thailand’s 19 new cases make up its lowest daily increase since it reported seven cases on March 14, preceding a surge in new cases, that prompted the prime minister to enforce an emergency decree and order a partial lockdown.

The Southeast Asian nation has a total of 2,811 cases and 48 deaths. Nearly 75%, or 2,108 sufferers, have recovered.

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Negative $40 oil reflects panic – and U.S. crude market economic reality

(Reuters) – Traders desperate to avoid owning oil fled the markets on Monday, sending crude futures into negative territory for the first time ever, in recognition that the coronavirus pandemic has sapped demand for fuel and there is not enough storage for the massive glut of oil present on U.S. soil.

Investors sold the May futures contract due to expire on Tuesday in a series of waves. At one point the contract hit negative $40. When the trading stopped, crude oil had ended the day at a negative $37.63 a barrel, a decline of some 305%, or $55.90 a barrel.

For as sudden as the day’s declines were, it was weeks in the making. The coronavirus pandemic cut fuel demand worldwide by roughly 30% beginning in early March, but for several weeks, the supply of oil worldwide has continued to build. Even the recent deal by OPEC and other major oil-producing countries to reduce supply will not be fast enough, nor large enough, to drain the millions of barrels of unneeded crude present in the markets.

That unwanted oil is instead going into storage, but in the United States, storage is filling much more quickly than anticipated. Cushing, Oklahoma, the tiny town of less than 10,000 people that serves as the main U.S. storage hub, was 70% full as of last week, and traders say it will be full within two weeks.

That realization sparked Monday’s sell-off in U.S. futures markets because of the technicalities of the West Texas Intermediate futures contract, which expires on Tuesday. When oil contracts expire, the holder has to take possession of 1,000 barrels of oil for every contract they own, delivered to Cushing.

However, with Cushing filling up, that leaves traders with the unappetizing option of taking oil they do not want, or getting out of those positions. The mad rush for the door means there were few buyers, and the contract dropped from a normal price of $18 on Friday into unprecedented negative territory.

“We saw a total collapse in the market. There was everybody selling it into the hole with no buyers,” said Phil Flynn, senior market analyst at Price Futures Group. “They’re going to have to drive down to a price where someone wants to buy it, and no one wants to buy it.”

For the first few hours of trading on Monday, the May oil futures steadily edged lower, widening the gap between that contract and the June contract, which, while weak, still ended the day at more than $20 a barrel. But with expiration on the way on Tuesday, the selling accelerated in the last two hours, with oil finally hitting negative territory roughly 20 minutes before the close of trading.

(GRAPHIC: Oil contract gap – here)

Once that level was breached, sellers piled in, sending the contract at one point below negative $40 a barrel before a slight rebound ended what will go down as the worst day since the West Texas Intermediate CLc1 contract was introduced in 1983.

“I’m 55 years old, and I worked on the trading floor in college. I’ve been through the first Gulf War, second Gulf War, World Trade Center, dot-com crisis, and nothing came close to this,” said Bob Yawger, director of energy futures at Mizuho in New York. “It could get worse. This situation that we’re in is that bad.”

COULD GET WORSE

Analysts say this type of market dislocations could recur in coming months because fuel supply will outweigh fuel demand for the foreseeable future. Worldwide oil consumption is roughly 100 million barrels a day, but consumption fell by 30% globally, or about 30 million bpd, beginning in early March.

However, it took the Organization of the Petroleum Exporting Countries, Russia and other countries until early April to agree to cut supply by 9.7 million bpd. Other nations, like the United States and Canada, did not mandate cuts from private industry, but those companies are swiftly reducing output.

“Activity is in free-fall in North America and is slowing down internationally,” said Halliburton Co (HAL.N) CEO Jeff Miller, on a company earnings call Monday.

It will nonetheless take months before those cuts fall enough to come in-line with reduced demand – even if world economies rebound somewhat as people recover from the pandemic, which has killed more than 165,000 people worldwide. With storage soon to be completely full in the United States, crude will not have a place to go.

Crude stockpiles at Cushing rose 9% in the week to April 17 to around 61 million barrels, market analysts said, citing a Monday report from Genscape. The hub has capacity for roughly 76 million barrels.

“It’s clear that Cushing is going to fill and it will stay full for the next several months,” said Andy Lipow of Lipow Oil Associates.

Unless production is cut more swiftly, next month could see a repeat of Monday’s frenzied activity with the June contract, which settled at $20.43, or $58 more than the impaired May contract.

“We’re probably unfortunately going to see this dislocation in these energy contracts remain in place for next month as well,” said Edward Moya, market analyst at OANDA. “You’re going to see this remain in place until we really start to see the oil giants, the Exxons, the Chevrons, just be forced to stop production.”

(GRAPHIC: U.S. oil futures contracts show gigantic gap – here)

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Oil price crashes into negative territory for the first time in history amid pandemic

NEW YORK (Reuters) – U.S. crude oil futures collapsed below $0 on Monday for the first time in history, amid a coronavirus-induced supply glut, ending the day at a stunning minus $37.63 a barrel as desperate traders paid to get rid of oil.

Brent crude, the international benchmark, also slumped, but that contract was nowhere near as weak because more storage is available worldwide.

While U.S. oil prices are trading in negative territory for the first time ever, it is unclear whether that will trickle down to consumers, who typically see lower oil prices translate into cheaper gasoline at the pump.

As billions of people around the globe stay home to slow the spread of the novel coronavirus, physical demand for crude has dried up, creating a global supply glut.

Traders fled from the expiring May U.S. oil futures contract in a frenzy on Monday with no place to put the crude, but the June WTI contract settled at a much higher level of $20.43 a barrel.

“Normally this would be stimulative to the economy around the world,” said John Kilduff, partner at hedge fund Again Capital LLC in New York. “It normally would be good for an extra 2% on the GDP. You’re not seeing the savings because no one is spending on the fuels.”

The May U.S. WTI contract fell $55.90, or 306%, to settle at a discount of $37.63 a barrel after touching an all-time low of -$40.32 a barrel. Brent was down $2.51, or 9%, to settle at $25.57 a barrel.

“It’s like trying to explain something that is unprecedented and seemingly unreal,” said Louise Dickson, oil markets analyst at Rystad Energy. “Pricey shut-ins or even bankruptcies could now be cheaper for some operators, instead of paying tens of dollars to get rid of what they produce.”

Refiners are processing much less crude than normal, so hundreds of millions of barrels have gushed into storage facilities worldwide. Traders have hired vessels just to anchor them and fill them with the excess oil. A record 160 million barrels is sitting in tankers around the world.

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  • Instant View: Spot U.S. oil futures crash below zero with nowhere to store crude

U.S. crude stockpiles at Cushing rose 9% in the week to April 17, totaling around 61 million barrels, market analysts said, citing a Monday report from Genscape.

The spread between May and June at one point widened to $60.76, the widest in history for the two nearest monthly contracts.

Investors bailed out of the May contract ahead of expiry later on Monday because of lack of demand for the actual oil. When a futures contract expires, traders must decide whether to take delivery of the oil or roll their positions into another futures contract for a later month.

Usually this process is relatively uncomplicated, but this time there are very few counterparties that will buy from investors and take delivery of the oil. Storage is filling quickly at Cushing in Oklahoma, which is where the crude is delivered. [EIA/S]

“The storage is too full for speculators to buy this contract, and the refiners are running at low levels because we haven’t lifted stay-at-home orders in most states,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “There’s not a lot of hope that things are going to change in 24 hours.”

Prices have been pressured for weeks with the coronavirus outbreak hammering demand while Saudi Arabia and Russia fought a price war and pumped more. The two sides agreed more than a week ago to cut supply by 9.7 million barrels per day (bpd), but that will not quickly reduce the global glut.

Saudi Arabia is considering applying oil cuts as soon as possible, rather than starting from May, a Wall Street Journal reporter said on Twitter, citing sources.

Brent oil prices have collapsed around 60% since the start of the year, while U.S. crude futures have fallen around 130% to levels well below break-even costs necessary for many shale drillers. This has led to drilling halts and drastic spending cuts.

MORE DATA SPARKS GLOBAL ECONOMIC CONCERNS

Weak global economic data also pressured prices. The German economy is in severe recession and recovery is unlikely to be quick as coronavirus-related restrictions could stay in place for an extended period, the Bundesbank said.

Japanese exports declined the most in nearly four years in March as U.S.-bound shipments, including cars, fell at their fastest rate since 2011.

U.S. oilfield services giant Halliburton Co on Monday reported a $1 billion first-quarter loss on charges and outlined the largest budget cut yet among top energy companies.

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Netanyahu and rival Gantz clinch Israel power-sharing deal

JERUSALEM (Reuters) – Israeli Prime Minister Benjamin Netanyahu and his centrist election rival Benny Gantz signed a deal on Monday to form a national emergency government, ending a year of unprecedented political deadlock.

The power sharing agreement clinched after weeks of negotiations gave a clear end-date for the premiership of Netanyahu, Israel’s longest serving leader, who has become for many the face of the nation.

Netanyahu, who is under criminal indictment in three corruption cases, will remain prime minister for 18 months after which Gantz will replace him, according to the agreement signed by both men.

Netanyahu’s trial on charges that include bribery, fraud and breach of trust is due to begin on May 24. He denies any wrongdoing.

Over the past year the right-wing leader, in power for more than a decade, has presided over a caretaker government following three inconclusive elections in April and September 2019 and on March 2, just as the country began grappling with the coronavirus outbreak.

“We have prevented a fourth election. We will protect democracy. We will fight coronavirus and care for all Israel’s citizens,” Gantz said on Twitter after signing the deal. Netanyahu Tweeted the Israeli flag.

Until he takes over as premier, Gantz, a former armed forces chief, will serve as defence minister with his political allies receiving the same number of ministerial portfolios as Likud.

The coalition agreement, released to the media, also states that while the new government will strive for peace and regional stability, plans to extend Israeli sovereignty to Jewish settlements in the occupied West Bank – land that the Palestinians seek for a state – could be promoted.

The move would mean a de-facto annexation of territory presently under Israeli military control. It would have to be greenlighted by the United States, after which Netanyahu would be permitted to advance plans from July 1, the agreement says.

“Given the Trump administration’s close relationship with Netanyahu, we have very serious, challenging days ahead,” said Hanan Ashrawi, a senior Palestine Liberation Organisation official. “This is extremely dangerous not just for Palestine, for Israel, for the region, but for the world.”

A U.S. peace proposal announced by President Donald Trump in January was embraced by Israel and rejected flat out by the Palestinians, partly because it awards Israel most of what it has sought during decades of conflict, including nearly all the occupied land on which it has built settlements.

But the new Israeli government’s first priority would be managing the coronavirus crisis.

Israel, with a population of about 9 million, has so far confirmed more than 13,500 COVID-19 cases and 173 deaths. Restrictions to curb coronavirus transmission have sent unemployment above 26%.

On the campaign trail, Gantz pledged not to serve in a government led by a prime minister facing criminal charges, but he backtracked last month, saying the enormity of the coronavirus crisis necessitated an emergency unity government.

The decision to join forces with Netanyahu enraged many of Gantz’s political allies who split from the party and will be part of the opposition in Israel’s 120-member parliament.

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S&P 500, Dow dip on oil price crash, earnings anxiety

(Reuters) – The S&P 500 and the Dow Jones headed lower on Monday following a strong two-week rally as oil prices crashed and investors grew cautious at the start of a week that is likely to bring more dismal quarterly earnings reports and economic data.

Energy stocks .SPNY shed 0.9% and were on track for their sixth slide in seven sessions as the U.S. West Texas Intermediate (WTI) contract CLc1 fell more than 40% to its lowest since 1998 on concerns of oversupply.

The Nasdaq .IXIC outperformed the broader market on gains in Amazon.com Inc (AMZN.O) and Netflix Inc (NFLX.O) – deemed “stay-at-home” stocks as widespread lockdowns fueled demand for online streaming and home delivery of groceries.

S&P 500 firms have recovered about 30% – or $5.8 trillion in market value – since a March trough on a raft of global stimulus and hopes the virus was nearing a peak in the United States.

But the benchmark index remains about 15% below its all-time high and analysts have warned of a deep economic slump from the halt in business activity and millions of layoffs.

U.S. jobless claims touched 22 million in the four weeks to April 11, and analysts have forecast as many as 5 million more in the latest week. A reading of an April U.S. manufacturing survey, also due Thursday, is expected to slide to recession-era levels.

“Today is largely a give back of some of the previous gains as people are trying to assess whether it’s going to be six months or nine months or 12 months until the economy is back on regular footing,” said Dev Kantesaria, founder portfolio manager of hedge fund Valley Forge Capital Management in Wayne, Pennsylvania.

After U.S. banks kicked off the quarterly earnings season with painful forecasts for 2020, investors will keep a close watch on reports from Delta Air Lines Inc (DAL.N), Southwest Airlines Co (LUV.N) and Netflix later in the week.

Overall, analysts expect earnings for S&P 500 firms to fall 13.5% in the first quarter, according to IBES data from Refinitiv, while Goldman Sachs has predicted share buybacks will halve and dividends will slide 23% in 2020.

At 11:24 a.m. ET the Dow Jones Industrial Average .DJI was down 211.69 points, or 0.87%, at 24,030.80, the S&P 500 .SPX was down 13.25 points, or 0.46%, at 2,861.31 and the Nasdaq Composite .IXIC was up 17.93 points, or 0.21%, at 8,668.07.

Hopes have also risen for a gradual reopening of the economy after President Donald Trump cited signs of plateauing in the virus outbreak last week and outlined new guidelines for states to pull out of shutdowns.

But his plan was thin on details and left the decision largely up to state governors. New York City Mayor Bill de Blasio said on Monday it could take weeks if not months before the country’s most populous city reopens due to a lack of widespread testing.

“The recovery will be much slower than the market is currently pricing in simply because social distancing measures can be relaxed but not removed until we have a vaccine or a very effective cure,” said Andrea Cicione, head of strategy at TS Lombard in London.

Most declines by midday were led by defensive stocks such as utilities .SPLRCU and real estate .SPLRCR, which fell about 2% each.

Bank stocks .SPXBX, on the other hand, tracked a decline in the benchmark 10-year Treasury yield US10YT=RR.

Declining issues outnumbered advancers more than 2-to-1 on the NYSE, while advancing issues matched decliners on the Nasdaq.

The S&P index recorded seven new 52-week highs and no new low, while the Nasdaq recorded 33 new highs and eight new lows.

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Israel's Netanyahu, rival Gantz sign unity government deal: joint statement

JERUSALEM (Reuters) – Israeli Prime Minister Benjamin Netanyahu and his centrist election rival Benny Gantz signed an agreement on Monday to form an emergency coalition government that would end a year of political deadlock.

Netanyahu’s right-wing Likud and Gantz’s Blue and White party issued a joint statement saying they had signed a unity deal, which follows elections in April and September 2019 and on March 2 in which neither won a governing majority in parliament.

Israeli media reported they would take turns as prime minister, with Netanyahu going first.

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Kazakh activist released after being held for spreading false information

ALMATY (Reuters) – A nationalist politician in Kazakhstan who has criticised the government was released on Monday after two days detention on accusations of spreading false information during the coronavirus emergency, his sister said.

Police detained political activist Arman Shorayev on Saturday and said the investigation involving him was ongoing. Officials have not said publicly whether he has been charged or what false information he was accused of spreading.

Shorayev’s sister Zhannar Shurayeva, who announced his release on Facebook, wrote on his behalf that the activist regretted publishing information that had not been fact-checked.

The former television executive turned nationalist politician has often criticised members of President Kassym-Jomart Tokayev’s cabinet while avoiding criticism of the president himself.

In recent Facebook posts and interviews, Shorayev accused senior officials of corruption and criticised the government’s borrowing plans and the cost of building a specialised hospital for coronavirus patients.

Last year, he became a member of the council of national trust, an advisory body set up by Tokayev, but was removed by the president this year along with several other members in what officials said was a planned rotation.

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