Brent crude plunges to 18-year low as oil slump rattles markets - as it happened

Time for a recap.

• The oil market is having another highly volatile day, amid concerns that producers will soon run out places to store crude oil.
  
  The US crude oil contract for May has recovered some of Monday’s historic slump, now trading at $5 per barrel (the barrel, alas, is not included). That’s up from minus $40 last night, when traders were effectively being paid to take oil from American drillers.
  
  
• Brent crude, sourced from the North Sea, has plunged today. The cost of a barrel of Brent in June is down 22% at $19.71, the lowest since 2002.
  
  The contract for US oil delivery in June has also been pummelled today, dropping to $16 per barrel from around $25 on Monday. Some analysts believe it could suffer the same fate as May’s contract (which expires, or rolls over today).
  
  
• US president Donald Trump has pledged to protect jobs across the US energy sector, where indebted shale oil producers face the threat of bankruptcy unless prices rise.
  
  But given demand is so weak during the lockdown, and oil storage is saturated, heavy production cuts may be needed.
  
  
• Markets have been spooked by the oil market’s gyrations. European stocks have fallen around 3% today, wiping 171 points off the FTSE 100 in London.
  
  In New York, the Dow is currently down 658 points or 2.8% at 22,992.22.

• Sterling has been hit too, with the pound hitting a two-week low against the US dollar and the euro.
  
  
• There are fresh signs that the global economy is weakening, US home sales slid in March and German investors reporting that current economic conditions have worsened dramatically.
  
  
• The Scottish government’s chief economist has predicted its economy could shrink by a third in the coming months. Ireland expects its GDP to fall by at least 10% this year.
  
  In the UK, labour market data show unemployment had risen even before the lockdown began.

• Retailers are struggling too, with Primark writing off almost £300m of stock which it can’t sell. Cath Kidson is shutting all its UK stores through a rescue deal that will wipe out 900 jobs. John Lewis is furloughing 14,00 staff:

That’s all for today. Thanks for reading and commenting. GW

Oof. A late burst of selling has helped wipe almost 3% off Britain’s stock market.

The FTSE 100 has just closed for the day, down 171 points or 2.96% at 5,641 points.

Mining stocks and oil companies were among the fallers, along with other recession-sensitive stock such as equipment hire firm Ashtead (-8.8%).

BP lost 3% and Royal Dutch Shell fell 2.5%, both rattled by the slump in oil prices.

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European stock markets were also hit, with the Stoxx 600 index of leading companies dropping around 3.3%.

Ireland’s has added to the gloom today by predicting its economy will shrink by at least 10% this year - and longer, if the pandemic grinds on.

The Irish government’s base case scenario is for gross domestic product to fall by 10.5% in 2020 but if coronavirus restrictions last six months longer than expected, it could fall by over 15%.

Finance minister Paschal Donohoe explained (via Reuters:)

“We are clearly now in the midst of a severe recession, both domestically and globally. The scarring effect and uncertainty mean that recovery in the second half of the year will be gradual.”

The unprecedented plunge in US oil prices below zero is, understandably, front page news in America’s oil capital, Houston.

Nice splash too:

The pound is still having a bad day- now down 1.5 cents against the US dollar to $1.227 (a two-week low).

Sterling has also hit a two-week low against the euro, at 88.36p, as trader shun riskier assets.

Crazy chart of the day:

We’d better get used to reading about tumbling oil prices, reckons Brad Bechtel of Jefferies.

The Oil market and the plumbing within the Oil market is well and truly torched now and headlines like these are going to become relatively common place by the looks of it.

The issue of course is storage and regardless of production cuts that have been announced or will be implemented further, there simply is no where to put all this Oil. Our guys think by mid May we could be at ‘effective full’ in terms of capacity for storage. Not sure anyone knows what happens then but the price action we saw yesterday is a good indication of what is likely to happen.

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Donald Trump’s pledge to help America’s oil industry (without much detail) has helped push US crude prices a little higher.

The poor old US crude contract for May is now $1.4 per barrel, having struggled into positive territory again.

But contracts for June delivery are still weak, with Brent crude down 20% today at $20.39 per barrel (up slightly from this morning’s 18-year low)

Tony Yarrow, co-manager of the Wise Muti-Asset Income Fund, suspects Trump’s White House could help the fracking industry, which is burdened with high debts.

“Two months ago, the world used 100m barrels of oil a day. Today, we are told it is 70m. The deficit of 1.26bn gallons has to be stored somewhere. The world has run out of storage, and prices have collapsed into negative territory for the first time in history.

The situation can only get worse and demand will recover only gradually, so the pressure on producers will persist. To survive this new crisis, producers need a low cost of production and low levels of debt.

Much of the US shale industry is at high risk of failure, with relatively high production costs and very high levels of debt. Would the US administration be prepared to bail the shale industry out? President Trump would be inclined to do so, President Biden less so.”

Just in: US home sales have fallen at their fastest rate since late 2015, even before the Covid-19 lockdown hit the economy.

Sales of ‘existing homes’ tumbled by 8.5% in March, the National Association of Realtors reports. Those deals will mostly have been done in January and February - when coronavirus jitters were starting to worry investors, but before the big crash last month.

Lawrence Yun, chief economist for the NAR, fears that the market will slump by 3o% to 40% in the coming months:

“The first half of March held on reasonably well, but it was the second half of March where we saw a measurable decline in sales activity.”

President Trump has promised to help America’s oil and gas industry ride out the oil price crash:

A popular oil exchange traded fund (ETF) has tumbled 25% at the start of trading in New York.

The United States Oil Fund LP is set up to track the daily price movements of WTI crude oil, giving investors exposure to oil price moves without needing a futures account.

The fund, known as USO, is thought to own around a third of outstanding oil futures contracts. It is popular with retail investors, who typically pile in when they think oil prices are near bottom.

Money had flowed into USO earlier this month after oil producers agreed a deal to cut production -- which was meant to push prices up.

The slump in prices this week will be very painful for an ETF such as USO, especially given the way that oil futures contracts mature on a monthly basis. That means that a Fund must roll over their contracts to avoid actually owning physical oil (one factor behind yesterday’s crude meltdown).

Anxiety over the oil markets is hanging over the New York stock exchange, as trading begins.

The Dow Jones industrial average has dropped by 565 points, or 2.4%, to 23,085.00.

The Bank of England’s chief economist has firmly denied that the central bank is dabbling in monetary financing or helicopter money.

Andy Haldane insists that the BoE is simply ‘co-ordinating’ its response to the Covid-19 crisis with the Treasury, which he calls s ‘whopper’ of a crisis.

Reuters’ Andy Bruce has the details:

Britain’s gilt market should be confident that the Bank of England is not directly financing the state as part of its efforts to stimulate the economy, chief economist Andy Haldane said in a podcast published on Tuesday.

He said the institutional safeguards against such actions were strong in Britain.

“That gives me lots of confidence, and it should give the gilts market confidence, that this isn’t monetary financing. This is not helicopter drops, this is simply fiscal and monetary policy acting in tandem to tackle what is a whopper of a crisis,” Haldane told the Institute for Government think tank.

In recent weeks the BoE has pledged to buy another £200bn of government debt through its QE programme, and expanded the Treasury’s ‘overdraft’, potentially letting ministers tap it for billions more.

All very handy for Westminster, given the huge cost of supporting the economy through the crisis.

But you can see why Haldane is playing it down -- monetary financing would mean the central bank was funding government spending, potentially inflationary and destabilising for the currency.

European stock markets are falling deeper into the red, as traders prepare for a rocky start to trading on Wall Street.

In London the FTSE 100 index is currently down 2.3%, or 134 points, to 5678. That takes it back to Friday morning’s levels, before hopes of a coronavirus treatment breakthrough sparked a rally.

Mining companies are among the top fallers, with Glencore and Anglo American down 6%. That follows falls in commodity prices, as investors anticipate weak economic demand.

Oil producers BP and Royal Dutch Shell are still down around 4% too.

The Dow Jones industrial average is currently down 2.5%, or around 600 points, in pre-market trading -- which would match Monday’s falls.