The New Zealand share market may track Wall Street lower after US crude futures prices turned negative for the first time ever, raising question marks about the viability of global energy firms.
The spot price for Brent crude oil fell 6.9 percent to US$26.14 a barrel at 8am in Wellington. Wall Street was weaker with the Dow Jones Industrial Average down 2.5 percent, the Nasdaq fell 1 percent and the S&P500 shed 1.8 percent.
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The news may weigh on Refining NZ, which is already reviewing its future and has said fundamental change is needed to stay competitive, and New Zealand Oil & Gas, which has said it's on the hunt for new opportunities.
The New Zealand market, however, may take heart from the news that the country is moving out of a full lockdown early next week.
From next Tuesday, all businesses deemed to be capable of operating safely will be permitted to do so.
Oil prices plunged below zero on Monday as demand for energy collapses amid the coronavirus pandemic and traders don't want to get stuck owning crude with nowhere to store it.
Stocks were also slipping on Wall Street in afternoon trading, with the S&P 500 down 0.9 per cent, but the market's most dramatic action was by far in oil, where benchmark US crude for May delivery plummeted to negative $3.70 per barrel, as of 2.15pm Eastern time.
Much of the drop into negative territory was chalked up to technical reasons — the May delivery contract is close to expiring so it was seeing less trading volume, which can exacerbate swings. But prices for deliveries even further into the future, which were seeing larger trading volumes, also plunged.
Demand for oil has collapsed so much due to the coronavirus pandemic that facilities for storing crude are nearly full.
Tanks could hit their limits within three weeks, according to Chris Midgley, head of analytics at S&P Global Platts.
Benchmark US crude oil for June delivery, which shows a more "normal" price, fell 14.8 per cent to $21.32 per barrel, as factories and automobiles around the world remain idled. Big oil producers have announced cutbacks in production in hopes of better balancing supplies with demand, but many analysts say it's not enough.
"Basically, bears are out for blood," analyst Naeem Aslam of Avatrade said in a report.
"The steep fall in the price is because of the lack of sufficient demand and lack of storage place given the fact that the production cut has failed to address the supply glut."
Halliburton swung between gains and sharp losses, even though it reported stronger results for the first three months of 2020 than analysts expected. The oilfield engineering company said that the pandemic has created so much turmoil in the industry that it "cannot reasonably estimate" how long the hit will last. It expects a further decline in revenue and profitability for the rest of 2020, particularly in North America.
Brent crude, the international standard, was down $1.78 to $26.30 per barrel.
In the stock market, the mild drops ate into some of the big gains made since late March, driven lately by investors looking ahead to parts of the economy possibly reopening as infections level off in hard-hit areas. Pessimists have called the rally overdone, pointing to the severe economic pain sweeping the world and continued uncertainty about how long it will last.
The Dow Jones Industrial Average was down 364 points, or 1.5 per cent, to 23,887. The Nasdaq was down 0.1 per cent.
More gains from companies that are winners in the new stay-at-home economy helped limit the market's losses. Amazon rose 1.4 pre cent and Netflix jumped 3.8 per cent as people shut in at home and look to fill their time. Cleaning-products company Clorox likewise rose toward a new record and was up 1 per cent as households and businesses that remain open look to stay clean.
In Tokyo the Nikkei 225 fell 1.1 per cent after Japan reported that its exports fell nearly 12 per cent in March from a year earlier as the pandemic hammered demand in its two biggest markets, the US and China.
The Hang Seng index in Hong Kong lost 0.2 per cent, and South Korea's Kospi fell 0.8 per cent.
European markets were modestly higher The German DAX was up 0.5 per cent, the French CAC 40 was up 0.7 per cent and the FTSE 100 in London gained 0.7 per cent.
In a sign of continued caution in the market, Treasury yields remained extremely low. The yield on the 10-year Treasury slipped to 0.64 per cent from 0.65 per cent late Friday. It started the year near 1.90 per cent. Bond yields drop when their prices rise, and investors tend to buy Treasuries when they're worried about the economy.
Stocks have been on a generally upward swing recently, and the S&P 500 just closed out its first back-to-back weekly gain since the market began selling off in February.
Promises of massive aid for the economy and markets by the Federal Reserve and US government ignited the rally, which sent the S&P 500 up as much as 28.5 per cent since a low on March 23.
More recently, countries around the world have tentatively eased up on business-shutdown restrictions put in place to slow the spread of the virus.
But health experts warn the pandemic is far from over and new flareups could ignite if governments rush to allow "normal" life to return prematurely.
The S&P 500 remains about 15 per cent below its record high in February as millions more US workers file for unemployment every week amid the shutdowns.
Many analysts also warn that a significant part of the recent recovery in stocks is due to the expectation among some investors that the economy will rebound sharply once economic quarantines are lifted. They're essentially predicting that a line chart of the economy will ultimately resemble the letter "V", with a wild ride down but then a quick pivot to a vigorous recovery.
That may be too optimistic. "We caution that a U-shaped recovery is also quite likely", where the economy bottoms out and stays at that low level for a while before recovering, strategists at Barclays warned in a recent report.
Without strong testing programmes for Covid-19, businesses likely won't feel comfortable bringing back their full workforces for a while.
"With risk assets now overbought, the chance for a correction has increased," Morgan Stanley strategists wrote in a report.
- AP business writers Stan Choe, Damian J Troise, Alex Veigaap and Elaine Kurtenbach contributed to this report.