An idle pump jack near Karnes City, Texas. Picture: AP
An idle pump jack near Karnes City, Texas. Picture: AP

ASX falls as Asian markets crash over oil prices

The Australian share market has pared back its earlier losses but it is still lower after oil prices continued to slump.

The S&P/ASX200 benchmark index was down 40.4 points, or 0.77 per cent, to 5180.9 points at midday today, after being down 2.27 per cent. The All Ordinaries index at 1200 AEST was 42.2 points lower, or 0.80 per cent, to 5,263.4 points.

It came as Asian stock markets fell further as oil prices recovered some of their record-setting losses amid anxiety about the coronavirus pandemic's mounting economic damage.

Benchmarks in Tokyo, Hong Kong and Southeast Asia retreated while Shanghai was little-changed after Wall Street suffered its biggest decline in weeks. Benchmark US crude slipped but still was near this week's lowest.

 

A woman wearing face mask walks past a bank electronic board showing the Hong Kong share index at Hong Kong Stock Exchange. Picture: AP
A woman wearing face mask walks past a bank electronic board showing the Hong Kong share index at Hong Kong Stock Exchange. Picture: AP

Brent crude, the international standard, retreated further. The fall has rattled investors because it adds to evidence of the depth of a global economic downturn with factories idled and consumers ordered to stay home.

The plunge in oil prices "has stirred wider concerns of a sharp economic slowdown," Hayaki Narita of Mizuho Bank said in a report.

The glut of world oil supply has weighed particularly heavily on energy companies.

Beach Energy was one of those hardest hit, with its shares down 6.25 cents, or 4.84 per cent, to $1.22, meanwhile Oil Search was not faring much better, down 6 cents, or 2.4 per cent, to $2.44. Qantas management would not have liked early trade either.

Despite rival Virgin being placed in voluntary administration yesterday, Qantas shares slipped 17 cents, or 4.74 per cent, to $3.42.

The cost for a barrel of US oil to be delivered in June plunged 43 per cent overnight to $US11.57.

A day earlier, oil futures fell below zero for the first time. Fewer people are driving and flying due to travel restrictions in many countries designed to slow the spread of the virus.

The Australian dollar was buying 62.94 US cents at 10.15am AEST, down from 63.22 US cents at yesterday's close.

'IT BECAME VERY REAL'

Meantime, the leading markets in Europe were 1 per cent to 3 per cent down after Asian trading was also heading south.

The cost for a barrel of US oil - which US traders are likening to the price of pizza - to be delivered in June plunged 43 per cent to $US11.57 dollars.

The ASX has fallen for the past two days after Reserve Bank governor Philip Lowe warned Australia faces its biggest economic hit since the Great Depression with the bank expecting the economy to shrink by 10 per cent through the first half of this year. The oil price crisis

With few places left to store all the crude the world is producing, oil prices have collapsed. On Monday, the price of one oil benchmark fell below zero - which means some companies were preparing to pay to have oil taken off their hands.

 

 

US traders were still coming to terms with the fact that a slice of pizza is now worth more than a barrel of oil.

"Ever thought that it could be imaginable to see the price of US oil valued at less than a pizza? Or even a slice of pizza? How about for it to actually cost to sell US crude?" said Jameel Ahmad, head of currency strategy and market research at FXTM.

"All of this was previously thought to be unthinkable - but it became very real for traders as the price of US oil turned negative for the first time in history." European benchmark Brent North Sea oil for June delivery tumbled to an 18-year low, before coming off worst levels in volatile deals.

"Players are now paying buyers to take oil volumes away as the physical storage limit will be reached. And they are paying top dollar," said Rystad Energy analyst Louise Dickson.

 

 

 

A bust in the oil market, the likes of which the industry has never seen, worsened as traders were gripped by fear that crude output remained far too high and storage was quickly running out.

The futures contract for West Texas Intermediate crude to be delivered in May fell on Monday into negative territory - a bizarre move that has never happened before. In other words, some traders were willing to pay buyers to take oil off their hands.

The crash in global oil prices deepened Tuesday as pain spread to currencies of major exporters and shares in energy producers.

The most actively traded US contracts for crude - the West Texas Intermediate futures for delivery of oil in June - plunged by almost a third to $US13.80 a barrel. The decline came a day after the May contracts for the US crude benchmark dropped below zero for the first time in history, meaning sellers must pay buyers to take barrels off their hands.

The chaos in oil markets gave great exposure to the massive impact government-imposed lockdowns designed to stall the spread of the coronavirus have dealt to oil demand.

 

 

There's no better sign of what's happening at a domestic level than to see US roads empty of cars. Many people are reporting that they are only turning on their cars every few days to make sure the battery doesn't go flat. Gas prices at the pump have hit historic lows.

With producers unable to shut wells fast enough, and OPEC and G-20 production cuts not due to take effect until early May, traders say that the world is essentially running out of space to store oil.

 

 

Negative prices mean traders must pay to find buyers to take physical possession of the oil - a job made difficult with the world's storage capacity at bursting point.

Storage is a particularly big problem in the US where WTI (West Texas Intermediate) oil is delivered at a single, inland point.