Stock Gains Evaporate as Oil Prices Plummet to 20-Year Low

MANHATTAN (CN) — With almost no demand and storage at capacity, oil prices on Monday hit 20-year lows, causing markets to give up some of last week’s gains. 

As of 8 a.m. EST, prices per barrel of West Texas Intermediate were less than $12, while the international Brent dropped to about $26 per barrel.

Social-distancing guidelines have kept consumers and employees home, reducing demand for oil, and a recent price war between Saudi Arabia and Russia exacerbated the market’s problems.

A historic deal between OPEC countries and their allies earlier this year to slash oil production has proven to be a mere drop in the bucket for helping oil producers, some of whom warned they may not survive if oil prices don’t come back up. 

Investors watching the carnage in the energy sector unfold backed away from last week’s gains, with markets opening to hefty losses.

The Dow Jones Industrial Average, which had finally crept back over 24,000 points Friday, fell nearly 500 points at the morning bell, a 2% decrease to start the week. The S&P 500 and Nasdaq had similar, albeit lesser, decreases. 

The collapse of oil prices may cause further ripples among investors.

Plummeting oil prices will likely hit smaller, export-driven petro economies such as Mexico and Nigeria, a circumstance that could lead to “the complete collapse of social order in Venezuela,” according to an investor note by Boris Schlossberg of BK Asset Management. 

“It’s hard to forecast what kind of financial shocks the collapse of the energy complex will bring, but if the bankruptcy of the Sinaporean spot oil trading firm Hin Leong Trading is any indication of things to come, investors in the sector are in for a lot more pain,” Schlossberg wrote in Monday’s note. 

In its earnings report Monday, Energy giant Halliburton said it lost $1 billion during the first quarter of 2020. CEO Jeff Miller said the “dual shock” of dropping demand and oversupply ravaging the industry would cause depressed activity in North America throughout the rest of the year.

“We have been through downturns before. We know what to do and will execute based on that experience,” Miller said in a statement, noting the firm is reducing capital expenditures by $800 million and reducing overhead by $1 billion. 

Markets abroad already started the week on a down note, with the Nikkei in Japan falling 1% and Australia’s ASX closing 2.4% lower. European markets also fell across the board, with each of them dropping at least one percentage point as of 8:30 a.m. EST.

Investors also await news of Congress passing another stimulus package aimed at helping small businesses.

The Small Business Administration’s $349 billion Paycheck Protection Program, which had been rife with both technical and systemic problems since launch, ran out of money last week. Senate Republicans have called for additional funds to replenish the program, but Democrats have held back, citing the need to also help state and local governments.

Over the weekend, White House officials said a deal was likely to add at least $310 billion to the PPP. “I think we’re getting close to a deal,” President Trump said during his Sunday press conference.

If the package passes the Senate on Monday, it could reach the president’s desk by Wednesday.

The leading small business organization, the National Federation of independent Businesses, has urged lawmakers to earmark at least half the new funds to businesses with 20 or fewer employees. “We’ve heard from thousands (no exaggeration) of small businesses since PPP was launched that were having trouble getting their application in or getting any kind of communication once it was,” NFIB spokesman Adam Temple wrote in an email. (Parentheses in original.)

In a shocking move, Shake Shack announced Monday it was returning the $10 million it had received under the PPP.

“If this act were written for small businesses, how is it possible that so many independent restaurants whose employees needed just as much help were unable to receive funding?” Danny Meyer, CEO of Union Square Hospitality Group, wrote in a blog post. “We now know that the first phase of the PPP was underfunded, and many who need it most, haven’t gotten any assistance.”

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