We have heard a lot about how states and local budgets are strained by fighting the pandemic. The collapsing price of oil could also be a body blow for the states that depend on oil production, thousands of jobs and billions of dollars at tax revenue are at stake.
US stocks rose Friday as investors assessed the $484 billion coronavirus relief package passed in the House on Thursday evening. The additional bill includes $321 billion for the exhausted Paycheck Protection Program, as money for economic disaster loans for small businesses, emergency relief for hospitals, and additional coronavirus testing.
Still, all three major US indexes posted their first weekly decline in the past two periods, weighed down by a historic oil rout and uncertainty around an economic slowdown. The markets being volatile it is uncertain to predict the next turn of the market.
How did we end up with negative oil prices? This happens when a physical futures contract find no buyers close to or at expiry which happened few days back. Prices went negative on WTI as the futures contract for May expired; meaning anyone holding a contract was obliged to take delivery of the oil. With storage limited, traders resorted to paying others to take the contracts off their hands.
But with a peculiar speed it restored its value and revived the oil industry. US oil prices turned negative for the first time in history on Monday and fell to a low of -$40.32 a barrel, Brent also fell to a 22-year low.
But as of now, Oil prices have recovered in recent days after US President Donald Trump stoked fresh tensions in the Middle East by instructing United States Navy to “shoot down any and all Iranian gunboats” if they harass US ships at sea.
Oil prices stabilized on Friday after days of turmoil but concerns mount that its recent recovery will be short-lived. West Texas Intermediate, the US oil benchmark, was trading just below $17 a barrel, and Brent crude, the international benchmark, also just above $21 a barrel.
Along with the oil industry, investors are also looking into various other industries to measure the chances of early impact of pandemic affecting the first quarter results.
So the negative prices are reflection of dire market conditions for producers, with the hope that demand restart before the middle of May and that the June contract does not face.