US Crude Oil Prices Turn “Negative” after Record Slump, Storage Glut
RIO DE JANEIRO, BRAZIL – The US reserve tanks no longer have room to store crude oil, which plummeted to its lowest price this century and hit the largest slump in its history in a single day.
West Texas (WTI) futures contracts with maturity in May were traded at negative figures for the first time in history on Monday, ending the day at an impressive -US$37.63 a barrel, given the exceptional reduction in demand as a result of the crisis caused by Covid-19.
Oil’s collapse also dragged down stock markets around the world: Dow Jones ended the day at -2.44 percent, the S&P retreated 1.79 percent, and the Madrid Ibex also closed down, contrary to the main European indicators. In Brazil, the IBOVESPA, the main stock market index, dropped 0.02 percent, to 78,972 points. In the foreign exchange market, the dollar increased 1.4 percentage points on Monday, quoted at R$5.30. It was the second-highest quotation in history.
The oil market is starting to meet the doomsday prophecies of the International Energy Agency (IEA), which last Wednesday alerted that this would be the worst year in the commodity’s history. With the United States and half the world’s population locked in, there are no buyers of crude oil and prices have plummeted.
The OPEC+ production cut of ten million barrels per day, agreed two weeks ago, did little to help. “If energy consumption drops by 30 percent and OPEC reduces supply by ten percent, there’s still a big gap,” Elwin de Groot, head of macro strategy at Rabobank, summarizes in a statement to Reuters.
Without cars on the roads and planes in the sky, economies affected by pandemics no longer need the projected amount before the crisis.
Futures oil contracts are also collapsing because stored reserves already exceed demand, and the prospect is that the economic slowdown will continue to limit consumption. However, the June WTI contract ended the session at a much higher level than in May, quoted at US$20.43 a barrel. Nevertheless, oil companies’ stocks are down on the New York Stock Exchange. Europe, in turn, is evading the trend.
The Old Continent’s trading sessions continued to pick up, though timidly, and specifically as a result of the improved performance of oil -the Brent barrel, a reference in the European market, drops six percent and costs around US$26 ( R$138), less than half of what it cost before the crisis- and the positive data on the evolution of the pandemic coming from the countries most affected by Covid-19: in Spain, the number of daily deaths fell below 400 for the first time in a month. The Paris Bourse led the gains with a rise of 0.65 percent.
The Madrid stock exchange is the only one in the eurozone to close with a loss (-0.64 percent) and the Ibex moves away from the 7,000 points it left behind last week after the IMF’s pessimistic projections for the global economy.
However, the Spanish indicator has held up the 6,800 limit, which it lost at times during the day, affected by the financial sector and tourism, as well as new negative projections for the economy: the Bank of Spain estimates that GDP could drop by as much as 13.6 percent in 2020 and has ruled out the long-awaited prospect of a V-shaped rebound.
Meanwhile, the Asian powers are providing new incentives: China has cut interest rates for a year and Japan has launched a plan worth R$5.85 trillion. However, the Tokyo Stock Exchange retreated again, with losses of 1.15 percent, after poor export data, which dropped 12 percent in March against the same period a year earlier.
Long-term damage
Robert Lind, Capital Group economist, recalls that macroeconomic projections anticipate exceptionally difficult months for the global economy. “We are dealing with declining levels of activity that no one has seen before. The potential blow to GDP in the second quarter is likely to far exceed what we saw at the worst moment of the [2008] financial crisis,” he says in a note released by Reuters.
De Groot goes further: “There will be long-term damage to the economy, particularly to consumer psychology”.
Source: El País
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| Instrument | Last | Change | YoY | Prev. | High | Low | Volume |
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| IBOV | 172,060.43 | +0.42% | +9.07% | 171,336.99 | — | — | — |
| USD/BRL | 5.58 | +0.00% | +5.92% | 5.58 | 5.58 | 5.58 | — |
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| VALE3 | 64.43 | -0.57% | -0.94% | 64.80 | 65.47 | 64.16 | 12,171,000 |
| ITUB4 | 41.72 | +1.26% | +4.25% | 41.20 | 42.09 | 41.55 | 19,415,700 |
| BBDC4 | 14.33 | -1.44% | -26.48% | 14.54 | 14.82 | 14.33 | 45,613,900 |
| BBAS3 | 16.89 | -1.23% | -28.04% | 17.10 | 17.31 | 16.89 | 29,418,100 |
| B3SA3 | 14.80 | +2.21% | +9.39% | 14.48 | 14.92 | 14.59 | 40,245,900 |
| ABEV3 | 15.85 | +0.38% | +16.63% | 15.79 | 15.88 | 15.74 | 21,260,300 |
| WEGE3 | 51.61 | +1.30% | +12.12% | 50.95 | 52.00 | 50.95 | 9,826,200 |
| PRIO3 | 61.47 | +2.42% | +52.53% | 60.02 | 61.99 | 60.50 | 18,937,900 |
| SUZB3 | 53.80 | -1.21% | +15.57% | 54.46 | 54.64 | 53.71 | 7,203,500 |
| RENT3 | 30.24 | +1.51% | -30.08% | 29.79 | 30.77 | 29.93 | 8,008,800 |
| AZZA3 | 15.37 | +4.34% | -46.54% | 14.73 | 15.45 | 14.74 | 3,535,400 |
| CSNA3 | 4.52 | +3.20% | -45.61% | 4.38 | 4.52 | 4.38 | 15,203,500 |
| GGBR4 | 25.25 | -2.25% | +33.60% | 25.83 | 25.81 | 24.98 | 5,425,100 |
| ENEV3 | 27.38 | +1.22% | +41.94% | 27.05 | 27.66 | 27.05 | 7,114,000 |
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