Markets fell on Monday as futures contracts for U.S. oil turned negative for the first time in history.
- The Dow Jones Industrial Average fell 2.2%, about 540 points, while the S&P 500 lost 1.6% and the Nasdaq Composite fell 1.0%.
- WTI crude oil futures for May plunged to their lowest level in history—negative $6.75 per barrel—amid plummeting global demand.
- Despite a landmark deal between OPEC and its allies to cut global production by record levels, U.S. storage tanks are filling up and traders are dumping the contracts, which expire tomorrow and are due to be delivered while the country is still on lockdown.
- June futures for Brent crude, the benchmark for global oil prices, were down 8% to $25.83 per barrel.
- One reason for the price divergence between the two benchmarks is storage, CNBC reports: Brent crude is priced in the middle of the North Sea, where tanker storage is ample and accessible, while WTI oil storage in the U.S. is limited as well as landlocked.
- In response to the record-low oil prices, President Donald Trump said Monday the U.S. is “looking to put as much as 75 million barrels into” America’s strategic oil reserve, though it is unclear where the oil will be stored.
- Investors also awaited news from Washington that Congressional lawmakers had come to an agreement to replenish funds for the emergency loan program for small business; the Senate has scheduled a vote for Tuesday afternoon, but no deal has been reached.
“The plunge in oil prices speaks to the decline of global growth as demand dries up,” says Dan Russo, chief market strategist at Chaikin Analytics. “This could be a concern for investors who were expecting a V-shaped recovery on the economic front. Oil prices tend to be a gauge for the health of the global economy. It's difficult to be bullish on global economic growth with oil prices at multi-decade lows.”
Stocks rallied last week, with the S&P 500 gaining 2.5% and posting its first back-to-back weekly gains since early February. The Dow was up 1.7% for the week. The Paycheck Protection Program, one of the cornerstones of the $2 trillion CARES Act, exhausted its $350 billion in funding last Thursday after less than two weeks.