The collapse in the price of oil is creating a slippery downward slope for United States stocks, which closed lower for the second day in a row.
The Dow Jones Industrial Average fell 630.73 points or 2.67 percent to close at 23,019.71. The S&P 500 – a gauge of US retirement and education savings accounts – lost 3.07 percent, while the tech-heavy Nasdaq Composite Index ended 3.48 percent lower.
With the collapse spilling into June futures contracts, equity investors became wary of the extent of the economic damage from sweeping lockdown measures that have halted business activity and sparked millions of layoffs.
On Monday, the May contract for West Texas Intermediate (WTI) crude went into a death spiral, plunging more than 300 percent with prices turning negative. At its lowest point, WTI for May delivery touched -$40.32 before settling at -$37.63.
The negative price turn signals that traders are willing to pay to have oil taken off their hands as crude storage facilities in the US near capacity.
On Tuesday, the last day to trade under the May contract before it expires, prices clawed back into positive territory to $10.01 a barrel. But the June contract was coming under pressure, ending the day at $11.57 a barrel.
“The contagion has spilled over to WTI June 2020 deliveries, which could also be well on their way into the red as we move towards physical delivery dates,” Louise Dickson, oil markets analyst at Rystad Energy, said in a note to clients.
The crude price rout extended to global benchmark Brent with the contract for June deliveries closed at $19.33.
“The physical reality of a still massively oversupplied oil market will likely exert downward pressure on the June WTI contract,” Goldman Sachs said in a note. “As storage becomes saturated, price volatility will remain exceptionally high in the coming weeks.”
The commodity price pressure spilled over into energy stocks. Shares in Exxon Mobil Corp ended the day down just 0.53 percent on Tuesday, while shares of Chevron were off 2.3 percent.
Oil markets are getting hammered by a tsunami of oversupply as coronavirus containment measures close entire sectors of the US and global economies. A bad situation turned worse after Saudi Arabia unleashed an oil price war, flooding already-saturated markets with crude. A historic output cut deal between Saudi-led OPEC and its allies led by Russia has done virtually nothing to assuage oversupply concerns and has utterly failed to stem the unprecedented price rout.
The ugly picture for energy is just another symptom of the economic destruction wrought by the coronavirus.
Despite trillions of dollars in stimulus, the benchmark S&P 500 stock index remains nearly 17 percent below its record high as signs and warnings mount over a deep, coronavirus-induced global recession.
US Senate Democratic Leader Chuck Schumer said on Tuesday that Republicans and Democrats had agreed on a fourth coronavirus spending bill to help small businesses and that the deal would be passed in the Senate later in the day.
Dismal 2020 forecasts from big US banks kicked off the first-quarter US corporate earnings season, and major companies have since announced dividend cuts.
Analysts expect a corporate recession this year with earnings for S&P 500 firms falling 13.5 percent in the first quarter and 29.1 percent in the second, according to IBES data from Refinitiv.
Coca-Cola Co provided the latest evidence of the damage inflicted by the coronavirus pandemic, saying its current-quarter results would take a severe hit from low demand for soft drinks. Its shares ended down 2.47 percent.
Among other Dow components, shares of International Business Machines Corp (IBM) lost 3.0 percent after the company withdrew its 2020 annual forecast late on Monday.
Lockheed Martin Corp, the Pentagon’s number one weapons supplier, ended 2.5 percent lower after reporting a better-than-expected quarterly profit. But the firm lowered its 2020 sales outlook due to supply chain delays.