U.S. Oil Prices Plunge Into Negative Territory: Live Updates

U.S. Oil Prices Plunge Into Negative Territory: Live Updates

Credit…Etienne Laurent/EPA, via Shutterstock

Something bizarre happened in the oil markets on Monday: Prices fell so much that some traders paid buyers to take oil off their hands.

The price of the main U.S. oil benchmark fell more than $50 a barrel to end the day about $30 below zero, the first time oil prices have ever turned negative. Such an eye-popping slide is the result of a quirk in the oil market, but it underscores the industry’s disarray as the coronavirus pandemic decimates the world economy.

Demand for oil is collapsing, and despite a deal by Saudi Arabia, Russia and other nations to cut production, the world is running out of places to put all the oil the industry keeps pumping out — about 100 million barrels a day. At the start of the year, oil sold for over $60 a barrel but by Friday it hit about $20.

Prices went negative — meaning that anyone trying to sell a barrel would have to pay a buyer $30 — in part because of the way oil is traded. Futures contracts that require buyers to take possession of oil in May are expiring on Tuesday, and nobody wanted the oil because there was no place to store it. Contracts for June delivery were still trading for about $22 a barrel, down 16 percent for the day.

“If you are a producer, your market has disappeared and if you don’t have access to storage you are out of luck,” said Aaron Brady, vice president for energy oil market services at IHS Markit, a research and consulting firm. “The system is seizing up.”

Refineries are unwilling to turn oil into gasoline, diesel and other products because so few people are commuting or taking airplane flights, and international trade has slowed sharply. Oil is already being stored on barges and in any nook and cranny companies can find. One of the better parts of the oil business these days is owning storage tankers.

Asian stocks fell in early trading on Tuesday on expectations of more bad news coming from companies disclosing the financial hit they have taken from the coronavirus outbreak.

Taiwan and Hong Kong fell more than 2 percent, leading a broad regional sell-off, which came a day after the S&P 500 index on Wall Street fell 1.8 percent. Futures markets predicted declines in the United States and Europe later in the day.

Monday’s stock moves were exacerbated by turmoil in the oil markets, as the price of oil briefly dipped below zero, meaning some holders were ready to pay people to take a barrel of crude off their hands. While quirks in how oil is traded accounted for a lot of the move, it still reflects low global demand for fuel, signaling predictions that much of the world’s economy will remain frozen for some time to come.

Oil prices in the United States rose 4 percent in futures markets, as many investors shifted from trading in one kind of contract to another. But Brent, the European benchmark price, was down 1.1 percent, and overall price levels still signaled that the world has too much oil that it can’t use.

Further signaling unease, prices for U.S. Treasury bonds were higher, as investors sought safety in places considered stable.

In Tokyo, the Nikkei 225 index was down 1.6 percent. Hong Kong’s Hang Seng index was down 2.3 percent. In mainland China, the Shanghai Composite index was down 1.4 percent.

Taiwan’s Taiex index fell 2.3 percent as of midday, and South Korea’s Kospi index was down 1.9 percent.

How many people just had to see “Tiger King”? We’ll probably find out on Tuesday when Netflix reports its first-quarter earnings after the market closes. With stay-at-home orders in place around the world, stockholders are expecting to see a surge in demand.

Here’s what to look for:

  • As many as 8.7 million new customers signed up during the first three months of the year, according to Bernstein Research. Before the pandemic, Netflix expected about 7 million.

  • Most of those are coming from overseas. Netflix has more ground to gain across Europe, Asia and Latin America where people are still discovering the service. For the United States and Canada, expect around 1.4 million new accounts.

  • Netflix should bring in $5.7 billion in revenue and $739 million in profit, according to a survey of analysts by S&P Capital IQ. But with Hollywood shut down, the company has not been able to fill its pipeline with new content. The streaming service has plenty of films and shows in the can, but the slowdown will affect its lineup later in the year.

  • Netflix announced last month it would continue to pay its production staff out of a $100 million fund it created to shore up the Hollywood economy.

  • The slowdown might be a short-term blessing. Netflix normally burns through a ton of cash to fund its content slate. Because the company pays for all of its productions up front — before they are available to watch — it does not account for those costs until later, sometimes a year or more after it has spent the money. That allows Netflix to claim a profit despite spending more than comes in. It’s completely legal, and every media company does it. Netflix just does it on a much bigger scale.

  • For those who wonder how much that costs, investors estimate Netflix spent $497 million more than came in during the first three months of the year. Of course, that number is likely to be much smaller during the current crisis.

Virgin Australia announced on Tuesday that it had entered voluntary administration after the Australian government refused a bailout for the company of 1.4 billion Australian dollars.

The airline, which is among the largest domestic and international carriers in Australia, said it hoped to recapitalize the business to emerge in a stronger position after the coronavirus crisis, but in the meantime would continue to operate scheduled flights transporting essential workers, moving freight and returning Australians home.

“Our intention is to undertake a process to restructure and refinance the business and bring it out of administration as soon as possible,” Vaughan Strawbridge, the company’s administrator, said in a statement. “We have commenced a process of seeking interest from parties for participation in the recapitalization of the business and its future, and there have been several expressions of interest so far,” he said.

The company, which employs more than 10,000 people and flies to 41 destinations, became a significant player in the market following the closure of Ansett Australia in 2002, and its collapse would leave Qantas Airways with an effective monopoly over international travel to and from Australia, experts have said.

“Australia needs a second airline,” said Paul Scurrah, Virgin Australia’s chief executive. “We are determined to keep flying.”

Stocks on Wall Street tumbled, with shares of energy producers following the price of crude oil lower on Monday.

The S&P 500 fell about 1.8 percent.

Oil producers were among the worst performing shares in the index. Exxon and Chevron both fell more than 4 percent. United Airlines and American Airlines also fell more than 4 percent, after the former said that it had lost almost $2 billion in the first three months of the year.

Technology stocks again fared better than the broader market, with the Nasdaq composite falling about 1 percent. Those stocks have been gaining in part because companies like Amazon and Netflix are seen as able to profit from stay-at-home orders as consumers pullback on spending elsewhere. Netflix, which will report its quarterly earnings results later this week, rose more than 3 percent on Monday.

As investors try to gauge the extent of the damage caused by the coronavirus pandemic, they’ll face a flood of updates this week from other big companies, with about one-fifth of the S&P 500 expected to report first-quarter profits.

The losses on Monday may have been tempered somewhat by progress on the response to the pandemic. Lawmakers in Washington said they were nearing a deal for a new support package for small businesses, and President Trump said the authorities would step up testing.

  • Hertz, one of the world’s largest car rental companies, said on Monday that it had decided to terminate 10,000 employees in North America because of high rental cancellations and weak bookings related to the coronavirus pandemic. The cuts, which affect about one-third of Hertz’s American work force, will cost the company about $30 million. As of December, Hertz employed 38,000 people worldwide, including 29,000 in the United States.

Reporting was contributed by Edmund Lee, Livia Albeck-Ripka, Stanley Reed, Clifford Krauss, Vindu Goel and Mohammed Hadi.

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