Crude oil is processed at Tahe refinery of Sinopec in Kuqa in the southern part of China’s Xinjiang Uighur Autonomous Region on March 24. CHINA DAILY/ANN
US crude prices bounced on Tuesday but were unable to keep in positive territory, a day after crashing below $0 for the first time owing to crippled demand and a storage glut, while the commodity rout sent equities sharply lower.
Investors have also been spooked by US reports that North Korean leader Kim Jong-un had undergone cardiovascular surgery earlier this month and was in “grave danger”.
West Texas Intermediate (WTI) for May delivery rose to $1.10 per barrel in early trade after diving to an unprecedented low of -$37.63 in New York as the pandemic brings the global economy, transport and factory activity to a halt. However, it later eased back -$4.52.
The sell-off in May futures came because the contract expires later on Tuesday, meaning traders needed to find buyers to take physical possession of the oil – a job made near-impossible as storage becomes scarce.
However, focus is now on the June contract, which had trading volumes more than 30 times higher. That rose towards $21 per barrel, from $20.43 on Monday.
Brent crude, the international benchmark, was changing hands at $22.97 for June delivery, down about 10 per cent from Monday.
The collapse in WTI “was driven by a precipitous drop in demand caused by the market expectation that the US lockdown could continue into May”, said JP Morgan Asset Management’s Tai Hui.
“This isn’t surprising, given flights are grounded and people are driving much less for work and leisure. If the economic reopening takes longer than expected, we could see pressure further out in the futures curve.”
He said firms were still churning out oil because stopping output “is not feasible for some producers since it could permanently damage their oil fields. Hence, giving their oil away for one month could still make sense in the long run”.
Oil markets have been ravaged this year after the pandemic was compounded by a price war between Saudi Arabia and Russia.
While the two have drawn a line under the dispute and agreed with other top producers to slash output by almost 10 million barrels per day, that is not enough to offset the lack of demand.
Equity markets were deep in the red, having enjoyed a healthy couple of weeks thanks to massive stimulus measures and signs of an easing in the rate of new infections globally.
Tokyo ended two per cent lower, while Hong Kong shed 2.2 per cent and Sydney dropped 2.5 per cent with Mumbai more than three per cent lower.
Shanghai sank 0.9 per cent while Seoul was down a similar amount and Taipei retreated 2.8 per cent.
Singapore, Jakarta and Bangkok lost more than one per cent, and there were also big losses in Wellington and Manila. In early trade, London, Paris and Frankfurt tumbled.
Meanwhile, the Cambodia Securities Exchange index gained 3.51 per cent on Tuesday.
The losses came despite signs that the virus, which has infected almost 2.5 million people and killed 170,000, is easing as global lockdowns begin to take effect, allowing some countries to slowly return to normality.
Analysts warned the drop in stocks could be an indication that the recent surge may have been too much too quick and another sell-off is possible.
Adding to pressure on markets were the reports about Kim Jong-un.
CNN cited a US official saying Washington was “monitoring intelligence” that the leader was in “grave danger after a surgery”. The report did not specify what the intelligence was.
“If the North Korean news proves to be correct, the region is set for a period of uncertainty,” said Oanda’s Jeffrey Halley.
“Kim Jong-un was its leader for life, and he had weeded out a goodly number of potential rivals already. That leaves a nuclear-armed North Korea with giant armed forces facing a potentially messy succession process. China will also want to have its input into the process, forcefully if necessary.”
The flight to safety was reflected in currency markets, where the dollar soared against high-yielding, riskier units.
The Australian and New Zealand dollars and the South Korean won were all down almost one per cent, while the Russian ruble sank more than two per cent.
