Brent crude plunges to 18-year low as oil slump rattles markets - as it happened

Graeme Wearden

from on 2020-04-21 15:58 (#52EA3)

Rolling coverage of the latest economic and financial news, as Covid-19 recession drives US crude oil into negative territory

Earlier:

UK jobless rate rose to 4% before coronavirus struck
Jobless total up by 58,000 compared with previous quarter
Investors shocked to see US oil fall to -$40 last night

4.58pm BST

Time for a recap.

Dow falls 700 points to new session low https://t.co/0MjmlmY9qu pic.twitter.com/FO4xrNj0bi

4.42pm BST

Oof. A late burst of selling has helped wipe almost 3% off Britain's stock market.

The FTSE 100 has just closed for the day, down 171 points or 2.96% at 5,641 points.

4.21pm BST

Ireland's has added to the gloom today by predicting its economy will shrink by at least 10% this year - and longer, if the pandemic grinds on.

The Irish government's base case scenario is for gross domestic product to fall by 10.5% in 2020 but if coronavirus restrictions last six months longer than expected, it could fall by over 15%.

"We are clearly now in the midst of a severe recession, both domestically and globally. The scarring effect and uncertainty mean that recovery in the second half of the year will be gradual."

4.18pm BST

The unprecedented plunge in US oil prices below zero is, understandably, front page news in America's oil capital, Houston.

Nice splash too:

What a front page from Texas today pic.twitter.com/5cysdQCkbq

3.59pm BST

The pound is still having a bad day- now down 1.5 cents against the US dollar to $1.227 (a two-week low).

Sterling has also hit a two-week low against the euro, at 88.36p, as trader shun riskier assets.

3.46pm BST

Crazy chart of the day:

This is just an incredible chart! #Oil (30-day) #volatility has spiked to 1100! In normal times its around 30. pic.twitter.com/Ot7WduUmiU

3.45pm BST

We'd better get used to reading about tumbling oil prices, reckons Brad Bechtel of Jefferies.

The Oil market and the plumbing within the Oil market is well and truly torched now and headlines like these are going to become relatively common place by the looks of it.

The issue of course is storage and regardless of production cuts that have been announced or will be implemented further, there simply is no where to put all this Oil. Our guys think by mid May we could be at 'effective full' in terms of capacity for storage. Not sure anyone knows what happens then but the price action we saw yesterday is a good indication of what is likely to happen.

3.14pm BST

Donald Trump's pledge to help America's oil industry (without much detail) has helped push US crude prices a little higher.

The poor old US crude contract for May is now $1.4 per barrel, having struggled into positive territory again.

The bloodbath continues.#WTICrude (June contract, not May) is down by 30%#Brent crude is below $20, lowest in 18 years.

Traders are worried about storage space. There is a massive oversupply in the market.

A clear message going out - NEED MORE CUTS#OOTT #OilPrices pic.twitter.com/FWDCZ4oZWK

"Two months ago, the world used 100m barrels of oil a day. Today, we are told it is 70m. The deficit of 1.26bn gallons has to be stored somewhere. The world has run out of storage, and prices have collapsed into negative territory for the first time in history.

The situation can only get worse and demand will recover only gradually, so the pressure on producers will persist. To survive this new crisis, producers need a low cost of production and low levels of debt.

3.06pm BST

Just in: US home sales have fallen at their fastest rate since late 2015, even before the Covid-19 lockdown hit the economy.

Sales of 'existing homes' tumbled by 8.5% in March, the National Association of Realtors reports. Those deals will mostly have been done in January and February - when coronavirus jitters were starting to worry investors, but before the big crash last month.

"The first half of March held on reasonably well, but it was the second half of March where we saw a measurable decline in sales activity."

Existing home sales latest casualty to COVID19. Realtors expect a drop of 30-40% in next couple months. Inventories depleted as no one wants people to walk through their homes during crisis. Also worry about contracts and how many will be cancelled in coming months.

2.47pm BST

President Trump has promised to help America's oil and gas industry ride out the oil price crash:

We will never let the great U.S. Oil & Gas Industry down. I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!

2.45pm BST

A popular oil exchange traded fund (ETF) has tumbled 25% at the start of trading in New York.

The United States Oil Fund LP is set up to track the daily price movements of WTI crude oil, giving investors exposure to oil price moves without needing a futures account.

$USO will hold something like 30% of June futures at the open today because retail traders have poured money into it, thinking it was a long-term bet on oil. It's turning into one of the great incinerations of retail money of all time.

- @FX_Button https://t.co/4sHzesIZ7o

9. For context here is how shares outstanding of USO has evolved since 2008. pic.twitter.com/MG4a3IdYbt

2.37pm BST

Anxiety over the oil markets is hanging over the New York stock exchange, as trading begins.

The Dow Jones industrial average has dropped by 565 points, or 2.4%, to 23,085.00.

The Dow industrials fell more than 500 points as the selloff in oil markets deepened a day after one oil contract fell below $0 https://t.co/BfiHiGOiGv

1.47pm BST

The Bank of England's chief economist has firmly denied that the central bank is dabbling in monetary financing or helicopter money.

Andy Haldane insists that the BoE is simply 'co-ordinating' its response to the Covid-19 crisis with the Treasury, which he calls s 'whopper' of a crisis.

Britain's gilt market should be confident that the Bank of England is not directly financing the state as part of its efforts to stimulate the economy, chief economist Andy Haldane said in a podcast published on Tuesday.

He said the institutional safeguards against such actions were strong in Britain.

Extraordinary that this is being said by a BoE official. Sign of the times!

BOE'S HALDANE SAYS GILT MARKET SHOULD HAVE CONFIDENCE THIS IS NOT MONETARY FINANCING

1.16pm BST

European stock markets are falling deeper into the red, as traders prepare for a rocky start to trading on Wall Street.

In London the FTSE 100 index is currently down 2.3%, or 134 points, to 5678. That takes it back to Friday morning's levels, before hopes of a coronavirus treatment breakthrough sparked a rally.

Dow futures point to 600-point drop at the open as historic sell-off in oil continueshttps://t.co/hDkoYiQjMq pic.twitter.com/Gk3wTLjhXU

12.49pm BST

Charles Bond, natural resources partner at legal firm Gowling WLG, says the slump in US oil prices amid an unprecedented glut will have major implications - short and long term.

If the industry runs out of storage space, leading to producers shutting down fields which they won't start up again - this could lead to an increase in the oil price, coinciding with increased consumer demand as countries come out of lock down.

However, the short term effects are likely to have a dramatic effect on oil revenue dependent currencies, such as the Russian rouble. The other interesting aspect will be the effect on other forms of energy, if the oil price is so low, at least till demand picks up again"will alternative forms of energy be disrupted, with solar, wind etc becoming too expensive?

12.44pm BST

City economists, traders and journalists were up bright (ish) and early for today's UK unemployment data, released unusually early at 7am (as physical distancing means reporters can't visit the ONS for a peek under embargo).

But as economics editor Larry Elliott writes, the data is too old to be much help:

Unemployment up a tad to 4%. Job vacancies and pay growth down a fraction. Britain's latest official labour market figures are a bit like the Domesday Book: comprehensive and rich in detail but of historical interest only.

12.37pm BST

On a happier note, innocent drinks has donated 220,000 bottles of its fruit smoothies and juices to hospitals, charities and foodbanks.

"The Re-Route The Fruit campaign allows us to use our healthy drinks as a way to give help to those who need it and hopefully at the same time put a smile on people's faces during this tough phase."

12.08pm BST

Economics professor Adam Tooze has pinpointed the problem:

Cushing, Oklahoma - known as the Pipeline Crossroads of the World - is where they ran out of oil storage capacity, triggering bizarre inversion of futures prices! pic.twitter.com/ZUs86c5CaT

12.06pm BST

The RAC, which represents UK motorists, has cautioned against expecting petrol prices to plunge.

It points out that petrol stations have suffered falling sales, meaning they may not be able to pass on cheaper wholesale prices.

It's right that retailers charge a fair price for fuel that reflects the price of the raw product, and in theory petrol prices could fall below 1 per litre if the lower wholesale costs were reflected at the pumps.

"But at the same time people are driving very few miles so they're selling vastly lower quantities of petrol and diesel at the moment. This means many will be at pains to trim their prices any further.

11.57am BST

The Covid019 shutdown has hurt demand for clothes, as well as oil -- especially with many stores shut.

"We are confident that we have the necessary resources to meet even the most pessimistic of our forecasts."

"In time we can rebuild the profits. We can't replace the people we lose."

11.43am BST

This is a seriously rattled oil market:

June #crude traded down to $11.79 overnight, off lows at $17. Buckle up buttercups! #OOTT pic.twitter.com/gdnGY6WTkX

11.42am BST

Significantly, it's the price of Brent crude for delivery in June that is falling dramatically today. The US June crude oil contact is falling sharply too.

Yesterday's astonishing plunge below zero related to US crude for delivery in May, a contract that is soon expiring (meaning anyone holding it actually gets barrels of crude).

Yesterday's negative #OilPrice might be seen as a freak, one-off occurrence. What's happening today, for June oil deliveries and Brent crude, could shake the US economy. #OOTT

Early morning look- equities under pressure, #crude getting clobbered, and that's June contract - down 20%! #ES_F #CL #CL_F pic.twitter.com/sanzPTZsje

Brent crude for June delivery is tumbling https://t.co/AbTKYZqK22 pic.twitter.com/Sy2R9WFgPa

11.32am BST

The plunging oil prices have already forced some refineries to pause operation.

And if June's US oil price weakens towards May's historic lows, others could follow!

As oil markets remain glutted, plants are shutting down across the world.

Portuguese refiner Galp Energia SGPS SA said it will suspend the operations at its Sines refinery for a month as its storage tanks are nearly full. Other refineries from the U.S. to Italy have already shut as the crisis ripples across the industry. In Asia, bankers are increasingly reluctant to give commodity traders the credit to survive as lenders grow ever more fearful about the risk of a catastrophic default.

International benchmark #Brent crude falls below $20 a barrel, down 24% on the day, to the lowest since 2002
https://t.co/dfpzllIVYR #OOTT pic.twitter.com/mYPh4RhTQz

The June WTI contract fell as much 42% earlier.

It's currently ~24% #OOTT pic.twitter.com/dYXyttQLEM

11.04am BST

The slump in the oil price as panicky traders try to avoid having to physically collect and store barrels of crude would interest John Maynard Keynes, were the good lord still with us.

10.50am BST

In another alarming development, the Brent crude oil price has now plunged to an 18-year low.

Brent (sourced from the North Sea) for delivery in June is trading at just $19 per barrel, down 25% today alone, following the slump in US crude oil prices below zero last night.

International benchmark Brent #crude falls below $20 a barrel, to the lowest since 2002 #OilPrices @HelenCRobertson pic.twitter.com/Qn6iBf0oOm

"The prices will be very low and I think they will remain low and very volatile for some considerable time.

There is still a lot of oil being produced that is going into storage and not being used.

10.38am BST

Scotland's output is likely to shrink by a third during the lockdown period, triggering an unprecedented economic crisis which dwarfs the recession of 2008/09, the Scottish government's chief economist, Gary Gillespie, has forecast.

"This is no ordinary economic downturn - many productive, profitable and sustainable businesses have been required to temporarily close bringing immediate financial stress.

[The] collapse in economic activity is also steeper and faster than in previous downturns and it has similarly impacted our major trading partners. The latter means many of our external markets both for goods and supplies are also impacted."

"VisitScotland's Survey of Tourism Businesses indicates that substantial numbers of respondents had experienced cancellations, declines in bookings, or fewer visitors. Industry feedback indicates the shock has created significant challenges for businesses' operating conditions."

10.25am BST

The ZEW Institute's survey of German investor confidence shows that economic conditions have worsened, but optimism has surprisingly picked up!

ZEW's gauge of current economic conditions has plunged to minus 91.5 this month, from minus 43.1, showing the impact of Germany's lockdown.

German ZEW -91.5 v -77 expected

German ZEW (sentiment) +28 v -42.3 expected#DAX 10483 -1.81%

10.01am BST

Cath Kidston is to permanently close all 60 of its stores in the UK with the loss of hundreds of jobs under a rescue deal with its Hong Kong-based owner Baring Private Equity Asia.

The vintage-inspired fashion label will continue to to trade online and via its wholesale and franchise businesses around the world which includes more than 100 stores. Some 908 people are being made redundant, with just 32 jobs saved in the UK.

"While we are pleased that the future of Cath Kidston has been secured, this is obviously an extremely difficult day as we say goodbye to many colleagues.

Despite our very best efforts, against the backdrop of COVID-19, we were unable to secure a solvent sale of the business which would have allowed us to avoid administration and carry on trading in our current form."

9.59am BST

Anxiety over the oil price slump is driving investors out of riskier assets, such as the pound.

Sterling has dropped below $1.24 for the first time in almost two weeks, as nervous traders pile into the US dollar.

9.56am BST

Here's my colleague Phillip Inman on today's UK jobs report:

Britain's jobs market weakened in the three months to February before the coronavirus outbreak, despite a record number of people in employment.

Figures covering the months leading up to the Covid-19 outbreak showed the economy struggling to overcome Brexit uncertainty and the impact of cuts to welfare benefits that forced many older women and young people to take low-paid employment.

9.51am BST

The price of a barrel of oil in July is also falling sharply today:

Oil taking another hit over storage capacity fears:#Oil - WTI (JUN) 1905 -6.16%#Oil - WTI (JUL) 2482 -4.34%#Oil - Brent (JUN) 2201 -13.96%#Oil - Brent (JUL) 2595 -11.34%#Gasoline 6167 -13.04%#London Gas Oil 248 -10.16%#Oil #Brent #WTI #OOTT

9.48am BST

Back in the oil market, Brent crude has now tumbled by 13.5% today to $22.10 per barrel, down from over $25 last night.

Still better than US crude -- the market will now pay you 29 cents to carry away a barrel of oil from American refineries in May (reminder, that contract expires today, so it rather illiquid). But it shows massive weakness in the energy market.

Brent crude for June delivery is tumbling https://t.co/nZxpopoinK pic.twitter.com/BRbsxVyWJ9

9.27am BST

Minister for Employment Mims Davies MP says the UK economy has 'strong foundations', which will help as it faces the economic shock of the coronavirus.

Here's her take on today's unemployment figures:

"In the midst of the worst public health emergency in our lifetimes, today's employment figures have already been overtaken by current events - and we're doing all we can to help families make ends meet.

"But the statistics - including a 4% unemployment rate - do serve as an important reminder of the strong foundations we have built as we look to withstand impact on the global economy."

@ONS have published the latest employment figures for December 2019 to February 2020

But today's figures will seem out of kilter with the times we are in

Around 1.8 million new benefits claims have been made since mid-March - over 1.5 million for #UniversalCredit pic.twitter.com/Zbv6COXhmL

9.16am BST

As if market didn't have enough to worry about, there are reports today that North Korea's leader is ill.

US news network CNN report last night that Washington was "monitoring intelligence" suggesting that Kim Jong-un was in "grave danger", according to one insider.

9.05am BST

The slump in oil prices isn't much use to UK car drivers, as they're not allowed to make non-essential journeys.

So with accidents down sharply, insurer Admiral has announced it will return 110m to its customers - reflecting the fact they're less likely to suffer an untimely shunt.

Decision to fill up the car in late March, "just in case", looking stupider and stupider.

9.01am BST

Here's a handy thread on the astonishing oil price slump, from analyst Alex Gilbert:

Oil is almost down to $1/barrel. Since many are not familiar with oil markets, its important to note why this is happening.

The May contract expires tomorrow. If you have a May contract at expiration, you must take physical delivery of 1,000 barrels of oil at Cushing in Oklahoma

Oil traders that still have contracts are selling at whatever price they can get because they do not (all) have the ability to take physical delivery.

Storage and refiners are not buying. The $1/barrel is a trading dynamic when there are many sellers and limited buyers

This is important: THE REST OF THE FORWARD CURVE HAS NOT CRASHED. The curve is down but the contract for June delivery is still at $22/barrel and July is at $27/barrel.

The $1/barrel May price may mean that storage is fully contracted but it is not clear yet

This is a very concerning development but it does not mean that oil is valueless, yet. The number of actual physical barrels being traded at this prices is very limited. Most of May delivery barrels are contracted in the $20s/barrel and even above

That said, this a terrible sign of whats to come. Its entirely possible that we see sub-$10/barrel spot prices all of May. Negative pricing for spot and futures are also possible for most US barrels

8.48am BST

The Covid-19 economic crisis has driven the Virgin Australia airline into administration today -- a sign of the massive crisis in the travel sector.

8.26am BST

Having 'recovered' overnight, the price of a US barrel of oil for delivery in May has turned negative again-- to minus $4.4 per barrel.

That shows that traders are desperate to avoid having to actually take delivery of a barrel of sticky black crude next month.

"The destruction in oil demand due to COVID-19 has been unprecedented - even more so than the deep recession in 2009. The surge in oil production over the last month has only exacerbated the issue and created one of the greatest gluts in the oil market history.

"Last week's agreed cut from OPEC+ wasn't enough to bring the slide in oil prices under control. The pressure on oil storage capacity has forced West Texas Intermediate (WTI) oil prices to be slashed in an attempt to relieve the level of producers' inventories.

8.15am BST

European stock markets have opened in the red, hit by the slump in the US oil price below zero last night.

Britain's FTSE 100 index has shed 80 points, or nearly 1.4%. Oil giants are leading the rout, with BP and Royal Dutch Shell both down over 4%.

8.01am BST

Dr John Philpott, Director of The Jobs Economist, is alarmed to see that the UK unemployment market was weakening even before the lockdown began.

'The UK labour market looks to have cooled before the Covid-19 lockdown measures placed the economy in a coma to help save lives.

Although the number of people in work increased by a fairly healthy 172,000 in the three months to February this was not enough to prevent a rise of 58,000 in the number unemployed, lifting the unemployment rate back to 4%. Cooling was also evident in a fall in total hours worked, fewer job vacancies and softening in the rate of growth of average weekly earnings, which dipped to 2.9% excluding bonuses (or 1.3% in real terms)

7.56am BST

Yael Selfin, chief economist at KPMG UK, predicts that the UK unemployment rate will more than double this year, from the 4% reported today.

She writes:

"Early figures for March underscore the impact COVID-19 is likely to have on the labour market.

"We estimate that as many as 13 million jobs are in sectors highly affected by the lockdown, representing 36% of all jobs in the UK, which could see unemployment rising to just under 9% during the lockdown period.

"An additional spike in unemployment after the lockdown also seems likely, once government support via the Job Retention Scheme ends.

7.54am BST

Today's unemployment report shows that the number of people claiming jobless benefits (the claimant count) rose in 12,000 last month.

The ONS has also estimated that the number of paid employees fell by 0.06% compared with February 2020, and that the number of vacancies has also dropped.

First ONS data for UK labour market for March still pre #coronavirus impact - the UK claimant count (no. of people seeking jobless benefits) rose by 12k m/m in March. Data collected on 12 March, before the lockdown.

7.46am BST

Some early economic news: Britain's unemployment rate has risen, even before the coronavirus crashed into the UK economy.

The UK jobless rate rose to 4.0% in the three months to February, new figures from the Office for National Statistics show. That's up from 3.9% in the previous quarter - but still low in historic terms.

Unemployment in the UK was estimated at 4.0% in December 2019 to February 2020.

This is 0.1 percentage points higher than the previous quarter but unchanged on a year earlier https://t.co/coxjBP48KC pic.twitter.com/Y5xZfpKj98

7.25am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Global stock markets are on edge today after the oil price plunged into negative territory last night - an unprecedented move, highlighting the slump in the global economy under the Covid-19 pandemic.

Oil at session highs of $1.35 a barrel

Crude Oil today
0.003 $ per Barrel
Production stopped
Note: it's WTI US Oil and it's spot rate. May 2020 contracts are closing. June futures still at $22.

*whispers* this is what the oil price collapse is telling us, and why the June futures price is too high... https://t.co/D5IoeqQo5s

The US crude turned negative for the first time in history and traded as low as $-40 per barrel on Monday. This is because the global oil glut has become so large that there is no space left to store this large quantity of unexploited oil. The market is literally submerged.

Hence the panic rose yesterday to an unprecedented level, as no one wanted to hold oil contracts due to expire today, therefore, rewarding investors who are ready to buy this unwanted oil, and store it.

European Opening Calls:#FTSE 5688 -2.15%#DAX 10437 -2.24%#CAC 4425 -2.29%#AEX 502 -2.15%#MIB 16677 -2.27%#IBEX 6677 -2.26%#OMX 1512 -1.87%#STOXX 2839 -2.41%#IGOpeningCall

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