Stocks sink as US oil prices fall below $0 a barrel: April 20, 2020

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US stocks finished lower on Monday, amid a historic selloff in the oil market.

US oil futures settled in negative territory for the first time in history as demand for the commodity remains thin and storage capacity in the US is at its limit. The May futures contract is also about to expire, which made trading more erratic.

The stunning drop in oil prices Monday – plummeting into negative territory – may turn out to be a short-term anomalous quirk. But investors are betting tanker companies who might be asked by energy firms to store excess oil offshore could get a big boost.

Shares of oil tanker company Frontline (FRO) surged nearly 15%, while Teekay (TK), Scorpio Tankers (STNG) and Nordic American Tankers (NAT) soared around 20%. It’s a byproduct of the quirk that led oil prices to plunge below $0.

The bet is that big oil producers, suddenly faced with a humongous drop in demand for crude as a result of the global Covid-19 pandemic, may need to find a way to store excess oil. The likely winners are companies like Frontline, which operate massive supertankers.

It’s worth noting, though, that any uptick in demand for offshore oil storage could be temporary if prices rebound. And the longer-term fundamentals for oil tankers remain weak in light of the sudden plunge in the global economy. The tanker stocks are still down sharply this year despite Monday’s big spike.

US oil prices turned negative Monday for the first time ever as the great oil crash of 2020 took a bizarre turn.

Crude finished at -$37.63 a barrel, marking the only time it has gone below zero since oil futures began trading on NYMEX in 1983.

The historic collapse shows just how terribly oversupplied the oil market has become. There are real fears that the world will soon run out of places to store barrels.

Producers are essentially PAYING to get rid of their barrels.

Part of the reason oil was so volatile is that trading volume was very light in the May contract, which expires Tuesday. That low liquidity set the stage for the unusual scenario of negative prices.

Although the May contract turned negative, the June contract was still trading above $20 a barrel. Brent crude, the world benchmark, traded above $25.

Crude finished at $18.27 a barrel on Friday, meaning they collapsed by more than 200% in one day.

Oil is so cheap that producers are paying to stockpilers to take barrels off their hands.

US crude crashed on Monday, falling below $0 to $-1.43 – the weakest level since NYMEX opened oil futures trading in 1983.

That marks a stunning one-day decline from Friday’s close of $18.27 a barrel.

The historic collapse shows that the market is betting the OPEC+ production cuts announced earlier this month aren’t enough to offset the unprecedented in demand caused by the pandemic.

Part of Monday’s nosedive is being driven by the fact that the May futures contract expires Tuesday, amplifying fears over a lack of storage space.

The June contract isn’t selling off by nearly as much, losing only 12.2% to $21.97 a barrel.

The three main US stock benchmarks are all in the red in the early afternoon. The Nasdaq Composite briefly turned positive earlier in the session but since pared its gains again.

Stocks are dragged lower by a collapse in oil prices. US oil fell to a low of just over $4 a barrel for May delivery. The selloff is being driven by the contract rolling off tomorrow and concerns over storage limits of physical oil.

The Dow was last down 1.2%, or some 300 points, while the S&P 500 was 0.8% lower. The Nasdaq was down 0.1%.

JBS USA, a major meat processor, is indefinitely closing its pork production facility in Worthington, Minnesota, the company said Monday.

“We don’t make this decision lightly,” Bob Krebs, President of JBS USA Pork, said in a statement. “We recognize JBS Worthington is critical to local hog producers, the US food supply and the many businesses that support the facility each and every day.”

The Worthington facility processes more than 20,000 hogs each day, and employs more than 2,000 people. Over the next few days, a smaller staff will keep the plant running to move inventory through the system.

JBS USA has closed two plants prior to this one. One, in Souderton, Pennsylvania, reopened on Monday. Another, in Greeley, Colorado, is still closed.

The retail industry is in the midst of unprecedented turmoil. But the Covid-19 pandemic is also leading to opportunities for a select group of strong retailers to grow even more dominant – thanks in large part to success in the realm of digital shopping.

Walmart (WMT), which owns Jet.com and several other niche e-commerce sites in addition to its own thriving Walmart.com platform, hit a new all-time high on Monday. The stock is now up 11% this year. Shares of Walmart rival Amazon (AMZN) were up more than 2% as well. The stock hit an all-time high last week and has surged more than 30% so far in 2020.

Canadian online retailer Shopify (SHOP) also continues to surge. The stock rose 6% Monday to a new record. Chief technology officer Jean-Michel Lemieux said in a tweet last Thursday that “our platform is now handling Black Friday level traffic every day!” Shares have soared nearly 60% this year.

Chinese e-commerce stocks are on fire as well. Pinduoduo (PDD), which lets people buy goods in groups in order to get big discounts, soared 11% Monday to a new record after it announced it was making an investment in Chinese household appliance and electronics retailer GOME.

Online retail leaders Alibaba (BABA) and JD.com (JD) have also bounced back sharply in recent weeks due to hopes that the worst could soon be over for China’s economy.

The Nasdaq Composite turned green mid-morning, having opened more than 1% lower just an hour and a half ago.

The tech-heavy index was up 0.1%. The S&P 500 was down 0.6% and the Dow sunk by 1%, or 245 points.

Health care and consumer stocks are helping push the Nasdaq higher.

Oil prices are plummeting, and they’re taking commodity currencies down with them.

US oil prices fell Monday to a low of $10.77 a barrel – a level not seen since December 1998 – as the May crude contract is set to expire, and suppliers are running out of places to store barrels.

Currencies of oil-exporting countries like Canada, Norway and Russia are all getting hit.

The US dollar climbed 0.4% against its Canadian rival, to C$1.41, and it gained 0.5% against the Norwegian krone to 10.36 krone per dollar.

Versus the Russian ruble, the dollar climbed 0.8% to 74.44 ruble.

The Brazilian real and Mexican peso, both also considered commodity-driven currencies, are feeling the pain as well. The greenback strengthened more than 1% against each of them.

The oil market is in meltdown mode.

US crude crashed an insane 41% on Monday to as low as $10.77 a barrel – the weakest level since December 1998.

The latest collapse leaves oil down 83% since the January peak of $63.27 a barrel.  

Monday’s nosedive was driven by two major forces: the expiration of the oil futures contract and the rapidly vanishing space to store unneeded barrels of oil. Although the May contract crashed below $11 on low volume, the June contract traded above $22. 

That unbelievably large spread is because of the storage problem. Companies will need to pile up barrels in more expensive places like ships. The wider the spread, the more economical these storage alternatives would be.  

The remaining 21 million barrels of storage at the Cushing, Oklahoma, hub will likely be filled up in May – causing “panic” in the oil markets, Bjornar Tonhaugen, head of oil markets at Rystad Energy, wrote in an email.  

Oil prices spiked above $28 a barrel on April 3 after President Donald Trump talked up massive production cuts by Saudi Arabia and Russia. Crude is now sitting 62% below those April 3 levels.  

US stocks dropped sharply at Monday’s open, as oil prices once again headed lower. US oil prices crashed below $11, dropping to its weakest level since December 1998 at its low point. Oil is selling off as the May crude contract is set to expire, and suppliers are running out of places to store barrels.

Meanwhile, earnings season is roaring on, with companies pulling their forecasts amid the coronavirus uncertainty.

The Dow dropped 1.9%, or 460 points, at the opening bell.

The S&P 500 fell 1.5%.

The Nasdaq Composite opened down 1.1%.

The coronavirus crisis is going to leave a mark on the US economy in the years to come, economists predict. But just how bad will 2020 be for growth?

The expectation is a deep recession in the first half of 2020, followed by a recovery later in the year “that still leaves US GDP down 6%, Europe’s down 8%, Japan’s down 3% and China’s up just 2%,” Joseph Amato, president and CIO of Equities at investment firm Neuberger Berman, said in a note on Monday.

The Neuberger model’s base case, or most likely scenario, assumes that Covid-19 cases peak around May or June in the United States, with a gradual reopening of the economy in June or July.

Neuberger Berman also identified a best-case scenario, in which the recovery from the virus would leave the US economy to only shrink by 3%. The worst case, on the other hand, assumes a second wave of infections and longer lockdown, with US GDP ending 2020 down 10% or more.

“Given the overall uncertainty and wide range of outcomes, we think volatility could be elevated for a while,” Amato said.

The spectacular collapse in oil markets is showing no signs of easing, as the coronavirus crisis saps demand and producers run out of places to store all their excess barrels of crude.

What’s happening?

US oil prices plunged more than 28% to nearly $13 per barrel on Monday, their lowest level since 1999.

The selloff can be attributed in part to market mechanics. The May futures contract for West Texas International, the US benchmark, is about to expire. Most investors are already focusing on the June contract, thinning out trading volume and feeding volatility, UBS analyst Giovanni Staunovo told me.

The extreme pressure on the WTI contract for May highlights ongoing concerns about the supply and demand dynamics plaguing the oil market.

What about the OPEC+ deal?

Saudi Arabia, Russia and other producers tried to prop up prices with a deal last week to slash production by 9.7 million barrels per day in May and June, the deepest cut ever negotiated. But that isn’t expected to soak up the supply glut caused by evaporating demand for energy.

Oil storage facilities are still at risk of overflowing, raising the chance that some oil producers in the United States and Canada could start paying customers to take crude off their hands, according to Staunovo.

Investors are particularly worried about storage reaching capacity in Cushing, Oklahoma, the main US hub.

The Cheesecake Factory (CAKE) is receiving a much-needed cash infusion to help stay afloat while its restaurants remain closed to dine-in customers.

Roark Capital is investing $200 million into the chain to help boost its liquidity while it continues to deal with the coronavirus crisis.

Cheesecake Factory CEO David Overton said the deal also “solidifies our ability to manage the business for the long-term for all of our stakeholders once we emerge on the other side of this crisis.”

Last month, the company said it wasn’t paying April rent. Shares soared as much as 10% in premarket trading.

US futures are off today as global stocks struggle to find direction and oil crashes. But taking a step back, the stock market appears to be in recovery mode.

See here: The S&P 500 has jumped three of the past four weeks after nosediving into the fastest bear market in history.

The broader picture, of course, is complicated.

Deutsche Bank noted last week that top central banks have expanded their balance sheets by $2.7 trillion, two thirds of which has come from the US Federal Reserve. But negative economic data could continue to cause problems for investors who are ready to get back into riskier assets, with uncertainty about how long lockdowns will last remaining a key issue.

United Airlines gave an early look at first-quarter results Monday, and they’re unsurprisingly terrible: The airline will report a $2.1 billion loss.

Shares of United (UAL) fell 6% in premarket trading on the report.

The company said its adjusted earnings won’t be quite as bad: a loss of $1 billion excluding special items. But that’s still far worse than the $378 million loss forecast by analysts surveyed by Refinitiv.

And things are likely to be even worse going forward.

United’s first-quarter revenue was down only 17%, as it saw a limited hit to traffic in January and much of February. But the company said last week that demand for air travel is now “essentially zero.” United cut its schedule by more than 50% in April, but it filled only a small percentage of those seats with paying customers.

So, for May and June the airline cut its schedule by about 90% of its original plans.

Still, United said it has $6.3 billion of cash available, including $2 billion to draw on existing credit lines. The airline also last week that it would get $5 billion in federal grants and low interest loans – and it could announce billions in additional federal loan support this week.

The major American banks reported earnings last week. This week, get ready to hear from Coca-Cola (KO), Netflix (NFLX), Delta (DAL), IBM (IBM) and Intel (INTC).

First up is IBM, which is on deck Monday after US markets close.

Fewer than 10% of S&P 500 companies have reported results for the January to March period to date. So far, they’ve “generally disappointed relative to tepid expectations,” according to David Kostin, chief US equity strategist at Goldman Sachs.

The investment bank calculates that 43% of companies have missed Wall Street’s predictions, on pace for the highest rate since at least 1998.

FactSet analyst John Butters predicts that S&P 500 earnings dropped 14.5% in the first quarter. That would mark the largest year-over-year decline for the index since the third quarter of 2009.

Watch this space: Much of the attention will be on expectations for full-year earnings, as investors try to assess how the coronavirus pandemic will hit businesses over a longer period. But Kostin notes that most strategists have written off 2020 entirely and are already looking ahead to 2021.

Shake Shack (SHAK) is returning a $10 million loan it received from the US government under an emergency program that was touted as a way to help small businesses pay workers and keep their operations running during the coronavirus crisis.

The burger chain was awarded the loan as part of the Paycheck Protection Program (PPP). The $349 billion stimulus package, overseen by the Small Business Administration (SBA), ran out of funding last week.

Shake Shack CEO Randy Garutti and chairman Danny Meyer revealed their decision to give back the funding in an open letter Monday, saying that the NYSE-listed company no longer needs the money because they are “fortunate to now have access to capital that others do not.”

The company said in a filing Friday that it expects to be able to raise up to $75 million from investors by selling shares.

Read more here.

Wall Street will kick off the week lower. Here’s where they stand at 6:15 am ET:

Stocks around the world were having a mixed day:

Hong Kong’s Hang Seng Index (HSI) ended down 0.2%, while China’s Shanghai Composite (SHCOMP) closed 0.5% higher.

The People’s Bank of China on Monday cut its one-year Loan Prime Rate by 20 basis points to 3.85%. The cut to the rate was widely expected after the central bank cut another key lending rate last week.

London’s FTSE 100 (UKX) and Germany’s DAX (DAX) opened narrowly higher, but France’s CAC 40 (CAC40) was slightly negative.