Market Sinks Further as Oil Prices Slip to Historic Lows

The perfect storm of social distancing due to Covid-19 and recent price wars continue to depress oil prices, and by extension Wall Street.  

Social distancing has ground the daily commute to a halt, but in San Diego one vehicle with places to be has a mask hanging from the rearview mirror. (Photo by BARBARA LEONARD/Courthouse News Service)

MANHATTAN (CN) — Oil prices continued to plunge Tuesday, and U.S. market followed with them.

With oil futures for the West Texas Intermediate next month still at historic lows, traders in that market began pulling out of June’s contract, which dropped to about $16 a barrel early Tuesday.

Prices per barrel of the West Texas Intermediate had plummeted more than 300% on Monday — the first time in history the market had dipped below zero — reflecting the lack of storage for crude. Markets turned negative when some oil sellers reportedly began paying buyers to take oil.

To stem the overflow of crude, President Donald Trump said during his Monday press briefing that he may look into adding up to 75 million barrels to the U.S. Strategic Petroleum Reserve. 

Experts say Wall Street expected the demand for oil to dry up with social-distancing guidelines, and its notice was quickly apparent, with the Dow Jones Industrial Average immediately falling more than 500 points. The S&P 500 and Nasdaq also both fell at the morning bell.

Markets in Asia closed down across the board, with Japan and Australia losing 2% and 2.4%, respectively. In Europe, markets were poised for an even worse outing Tuesday. At 9 a.m. EST markets in Germany, France and the United Kingdom had fallen about 3% each, while the pan-European Stoxx 600 was down 2.8%.

Goldman Sachs analysts predicted the volatility of oil markets will continue for the next few weeks, with the market “forced to balance before June,” according to an investor note Monday.

Investors are also continuing to watch corporate earnings, which show many companies took it on the chin during the first quarter of this year. 

A worker wearing a face mask drives a forklift at a Swire Coca-Cola Beverages Hubei Limited plant in Wuhan, China, on March 24. (Xiao Yijiu/Xinhua via AP)

In its release, Coca-Cola reported a 1% decline in net revenues, and the company predicts a brighter future by the second half of 2020. The company is typically thought be recession-proof, but the company has lost lots of business from shuttered bars and restaurants.

“The company believes the pressure on the business is temporary and remains optimistic on seeing sequential improvement in the back half of 2020,” Coca-Cola said in its release.

IBM, also considered a blue-chip stock most of the time, reported a 26% decrease year-over-year in net income Monday afternoon, though its cloud segment saw a 5% increase in revenues.

In somewhat positive news, Lockheed Martin reported net sales of $15.6 billion during the first quarter of 2020, as compared with $14.3 billion in the first quarter last year. Net earnings were virtually identical during both periods.

Several smaller banks also are releasing earnings reports today. Fifth Third Bancorp, which operates out of Cincinnati, reported a 97% decrease in earnings per share, with its net year-over-year income dropping from $775 million to $46 million. 

PacWest Bancorp, located in Los Angeles, reported a $1.43 billion net loss during the first quarter of 2020. The bank attributed much of the loss to a massive loss in goodwill, as well as the closure of more than two dozen of its bank lobbies.

CEO Mark Wagner said in a statement that the bank’s operations “remain strong” but that its loan portfolio was hit by downgrades in hotel, aviation, restaurant and retail segments. 

Investors are likely to be particularly focused on smaller companies in the next few days as Congress still wrangles over additional funding for the Small Business Administration’s Paycheck Protection Program.

Congress originally appropriated $349 billion for the program, which had been rife with both technical and systemic problems since launch. Last week the funds ran dry after beleaguered companies swarmed banks looking for a lifeline. 

The Senate has been working on a deal to re-up the program, but despite promises a deal would be finalized Monday lawmakers punted. 

Senate Minority Leader Chuck Schumer, D-N.Y., told CNN Tuesday morning he expects the Senate to vote on and pass the package later Tuesday. 

Groups like the National Federation of Independent Businesses have urged lawmakers to earmark at least half the new funds to businesses with 20 or fewer employees.

In a survey Monday, the NFIB found that 80% of small businesses that submitted successful applications had not yet received their funds, with many unsure where they are in the application process.

%d bloggers like this: