Continued oil market turmoil weighs on global stocks

NEW YORK, USA – Oil-price turmoil gripped markets once more Tuesday, April 21, a day after United States crude futures crashed below zero for the first time as the coronavirus crisis crippled global energy demand and worsened a supply glut.

The commodity rout also sent world equity markets spiraling lower, as investors fretted it could compound an expected deep global economic downturn. 

The benchmark West Texas Intermediate (WTI) price collapsed on Monday, April 20, to an unprecedented low of -$40.32. Negative prices mean traders must pay to find buyers to take physical possession of the oil – a job made difficult with the world’s storage capacity at bursting point.

A day after its historic slide into negative territory amid a supply glut, US oil futures finished in positive territory. 

But the market remained under heavy pressure due to the oversupply as coronavirus shutdowns constrain global growth.

Storage is a particularly big problem in the US where WTI oil is delivered at a single, inland point. 

In Europe, where Brent is the benchmark, there are several delivery sites and their proximity to the sea allows some of it to be stored on tankers.

“Players are now paying buyers to take oil volumes away as the physical storage limit will be reached. And they are paying top dollar,” said Rystad Energy analyst Louise Dickson.

This week’s massive sell-off came just ahead of Tuesday’s expiration of the May contract. Most trading has now moved to the June contract, and May WTI was back in positive territory by the close of New York trading.

‘Slice of pizza’

Oil markets have been ravaged this year after the pandemic was compounded by a price war between Saudi Arabia and Russia.

“Ever thought that it could be imaginable to see the price of US oil valued at less than a pizza? Or even a slice of pizza? How about for it to actually cost [money] to sell US crude?” said Jameel Ahmad, head of currency strategy and market research at FXTM.

While the two big oil-producing nations have drawn a line under the dispute and agreed with other countries to slash output by almost 10 million barrels a day, that is not enough to offset the lack of demand and prices have remained low.

European benchmark Brent North Sea oil for June delivery tumbled to an 18-year low, before coming off worse levels in volatile deals.

Stock markets sink

Equity markets were meanwhile also deep in the red on Tuesday, having enjoyed a healthy couple of weeks thanks to massive stimulus measures and signs of an easing in the rate of new infections globally.

Key eurozone stock markets closed with declines of up to 4%, while London did a little better thanks to a weaker pound.

On Wall Street, the Dow finished down more than 630 points, or 2.7%.

“Continued dysfunction in the crude oil markets” was the main factor behind the decline, analysts at Charles Schwab said, “while the Street continues to assess the timing of when the US economy may be able to reopen.”

Analysts warned the drop in stock markets could be an indication that the recent surge may have been hasty, and that another prolonged sell-off is possible. – Rappler.com