A glut of oil supplies sent United States crude prices spiralling to a 20-year low on Monday, as caution gripped Asian share markets on expectations that a busy week of corporate earnings reports and economic data will drive home the damage done by the global coronavirus lockdown.
Oil prices were under pressure as the measures to curb the spread of the virus saw fuel demand evaporate, leaving so much extra supply that countries were finding it hard to find space to store it.
So great was the near-term glut that the May futures contract for US crude was trading down 15 percent at $15.54 per barrel, while the June contract shed 5 percent to $23.71.
Brent crude does not have the same storage problems and its June contract was down only 25 cents at $27.83 a barrel.
Dutch investment firm ING’s commodities strategists said the plunge in oil prices in recent weeks has forced many US oil producers to halt their rigs.
“Over the last month, the total number of active oil rigs in the US has fallen by more than 35 percent, highlighting the impact that the current low oil price is having on drilling activity. This drilling slowdown will translate into lower production in the coming months,” ING’s Warren Patterson and Wenyu Yao said in a research note sent to Al Jazeera.
Meanwhile, new figures showed the damage to global trade caused by the virus.
Japan reported its exports fell almost 12 percent in March from a year earlier, with shipments to the US down more than 16 percent. Early figures on April manufacturing globally are due on Thursday and are expected to show recession-like readings.
MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2 percent in slow trade, as investors took a pause after five straight weeks of gains. Japan’s Nikkei fell 0.9 percent and Shanghai blue chips 2.4 percent even as China cut benchmark interest rates as widely expected.
E-Mini futures for the US S&P 500 index slipped 0.2 percent, having jumped last week on hopes some US states would soon start to reopen their economies.
US President Donald Trump said on Sunday his Republican party’s policymakers were “close” to getting a deal with Democrats on a support package for small business.
But the US Centers for Disease Control and Prevention reported an increase of 29,916 in new infections and said the number of deaths had risen by 1,759 to 37,202.
The S&P 500 has rallied 30 percent from its March low, thanks in part to the extreme steps taken by the Federal Reserve or commonly known as the Fed, to make it easier for people and businesses to access funding. The Fed has bought nearly $1.3 trillion of Treasuries alone, and many billions of dollars worth of non-sovereign debt it would historically have never gone near.
“The Fed will be a major buyer of risky assets in the coming months, and has displayed its willingness to backstop virtually any part of the domestic financial system in trouble,” said Oliver Jones, a senior markets economist at Capital Economics.
Yet the particular composition of the S&P 500 was also a major factor, he added, as three sectors relatively resilient to a virus-induced lockdown – IT, communications services and healthcare – make up about 50 percent of the index.
Indeed, Microsoft, Apple, Amazon, Alphabet and Facebook account for more than a fifth of the index.
“What’s more, the S&P 500 is skewed towards a few ultra-large firms, some of which are also in those sectors. Their sheer size might make them better able to weather a few months of dramatically-low revenues than most,” Jones said.
The rebound in the S&P 500 therefore likely overstated optimism on the economy, Jones argued, noting European benchmark equities indices and US small cap indices were still in bear-market territory.
Bond markets suggested investors expected tough economic times ahead with yields on US 10-year Treasuries steady at 0.64 percent, from 1.91 percent at the start of the year. Bond yields fall as their prices rise and investors tend to seek the relative safety of assets such as US government bonds during crises.
The dollar was a fraction firmer against the Japanese yen on Monday at 107.77, but again well within recent ranges, while the euro idled at $1.0868.
Gold recoiled to $1,679 per ounce, having touched a 7-1/2 peak of $1,746.50 last week.