US oil bounces after crashing below $0.00
HONG KONG: US crude prices bounced back into positive territory yesterday, a day after crashing below $0.00 for the first time owing to crippled demand and a storage glut, while the commodity rout sent equities sharply lower. Investors were also tracking developments in North Korea following US reports that Kim Jong Un had undergone cardiovascular surgery earlier this month and was in “grave danger”. West Texas Intermediate for May delivery rose to $1.10 a barrel after diving to an unprecedented low of -$37.63 in New York as the pandemic brings the global economy, transport and factory activity to a halt. However, it later eased back to sit 30 cents higher.
The sell-off in May futures came because the contract expires later Tuesday, meaning traders
needed to find buyers to take physical possession of the oil — a job made near-impossible as storage becomes scarce. However, focus is now on the June contract, which had trading volumes more than 30 times higher. That rose towards $21 a barrel, from $20.43 on Monday. Brent crude, the international benchmark, was changing hands at $23.87 for June delivery, down from Monday.
The collapse in WTI “was driven by a precipitous drop in demand caused by the market expectation that the US lockdown could continue into May”, said Tai Hui at JP Morgan Asset Management. “This isn’t surprising, given flights are grounded and people are driving much less for work and leisure. If the economic reopening takes longer than expected, we could see pressure further out in the futures curve.” He added that firms were still churning out oil because stopping output “is not feasible for some producers since it could permanently damage their oil fields. Hence, giving their oil away for one month could still make sense in the long run.”
Oil markets have been ravaged this year after the pandemic was compounded by a price war between Saudi Arabia and Russia. While the two have drawn a line under the dispute and agreed with other top producers to slash output by almost 10 million barrels a day, that is not enough to offset the lack of demand. Equity markets were deep in the red, having enjoyed a healthy couple of weeks thanks to massive stimulus measures and signs of an easing in the rate of new infections globally. Tokyo ended two percent lower, while Hong Kong shed 1.9 percent and Sydney dropped 2.5 percent with Mumbai
more than three percent lower.
Shanghai sank 0.9 percent while Seoul was down a similar amount and Taipei retreated 2.8 percent. Singapore, Jakarta and Bangkok lost more than one percent, and there were also big losses in Wellington and Manila. In early trade, London, Paris and Frankfurt tumbled. The losses came despite signs that the virus, which has infected almost 2.5 million people and killed 170,000, is easing as global lockdowns begin to take effect, allowing some countries to slowly return to normality.
Analysts warned the drop in stocks could be an indication that the recent surge may have been too much too quick and another sell-off is possible. The flight to safety was reflected in currency markets, where the dollar soared against high-yielding, riskier units. The Australian and New Zealand dollars and Russian ruble were all down more than one percent, while the Indonesian rupiah sank 0.9 percent. The South Korean won came under extra pressure following the reports about Kim. CNN cited a US official saying Washington was “monitoring intelligence” that the leader was in “grave danger after a surgery”. The report did not specify what the intelligence was. — AFP