Shares skid after oil prices dip into negative territory

Asian shares skidded on Tuesday after US oil futures plunged below zero with storage for crude nearly full as demand collapses due to the pandemic.

Shares fell in Tokyo, Hong Kong and Shanghai and New York stock futures retreated after the S&P 500 sank 1.8 per cent overnight, giving up some big gains from last week.

In a stunning development, the cost to have a barrel of US crude delivered in May plummeted to negative USD 37.63. It was at roughly USD 60 at the start of the year.

Traders are still paying more than USD 20 for a barrel of US oil to be delivered in June, which analysts consider to be closer to the true price of oil. Crude to be delivered next month, meanwhile, faces a stark problem: traders are running out of places to keep it, as factories, automobiles and airplanes sit idled around the world.

We could merely be in the eye of the hurricane as the epicenters of its rage remain centered around demand devastation and crude oil oversupply," Stephen Innes of AxiCorp. said in a commentary.

At a minimum, oil prices will be the last asset class to recover from lockdown. End transport demand will only occur in the final stages of reopening when border crossing is allowed, and travel restrictions get lifted," he said.

Tanks at a key energy hub in Oklahoma could hit their limits within three weeks, according to Chris Midgley, head of analytics at S&P Global Platts. So traders are willing to pay others to take that oil for delivery in May off their hands, so long as they also handle figuring out where to keep it.

Almost by definition, crude oil has never fallen more than 100%, which is what happened today, said Dave Ernsberger, global head of pricing and market insight at S&P Global Platts.

I don't think any of us can really believe what we saw today, he said. This kind of rewrites the economics of oil trading. Few traders are buying and selling U.S. oil to be delivered in May. When trading contracts for it expire on Tuesday, the earliest delivery they'll be able to buy is for June.

Brent crude, the international standard, fell nearly 9 per cent on Monday to USD 25.57 per barrel.

On Tuesday, US crude for June delivery rose 99 cents to USD 21.42 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the standard for international oil pricing, dropped 19 cents to USD 25.38.

The historic drop in WTI prices is an indication of the downward pressure which many other crude oil grades could face, given the oversupply situation," Sushant Gupta of Wood Mackenzie said in a report.

On the bright side, given the very low prices right now, It also provides an opportunity for large consuming nations in Asia such as China and India to expedite filling up their petroleum reserves." Gupta said India, for example, still has up to 13 million barrels of spare capacity out of a total of 39 million barrels of storage capacity.