US oil bounces back after going down the tubes
● Equities hammered as glut pushes crude prices deep into negative territory
US crude prices bounced back into positive territory yesterday, a day after crashing below $0 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 after US reports that Kim Jongun had undergone cardiovascular surgery earlier this month and was in grave danger.
West Texas Intermediate (WTI) 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 was due to expire later yesterday, 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“, JP Morgan Asset Management’s Tai Hui said.
“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 said 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.
Though 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 2% lower, while Hong Kong shed 1.9% and Sydney dropped 2.5%, with Mumbai more than 3% lower.
Shanghai sank 0.9% while Seoul was down a similar amount and Taipei retreated 2.8%.
Singapore, Jakarta and Bangkok lost more than 1%, 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. —