MANHATTAN (CN) — Oil prices dropped to their lowest point ever on Monday, entering into negative territory as investors scrambled to contain losses.
Prices per barrel of the West Texas Intermediate plummeted more than 300% on Monday, reflecting the lack of storage for crude. Markets turned negative when some oil sellers reportedly began paying buyers to take oil.
The price of the futures contract for the West Texas Intermediate, which represents U.S. production and is largely land-locked, dropped to about negative $37 per barrel. The WTI’s May futures contract expires on Tuesday.
After the plunge in oil started early in the day, Wall Street also started a sell-off, with the Dow Jones Industrial Average dropping 450 points at the opening bell. The Dow slid throughout the day to close at 23,646 points, down 2.4% for the day. The S&P 500 and Nasdaq had a better day, closing 1.8% and 1% lower, respectively.
“The moves in the oil market are really just unbelievable now that we are literally running out of storage space,” Peter Boockvar, an analyst at Bleakley Advisory Group, said in a research note.
Some investors had hoped a historic deal last week to slash oil production would help. Because social-distancing guidelines keeping consumers and employees home have essentially killed demand, however, the deal between OPEC and its allies is merely a drop in the bucket.
Plummeting oil prices will likely hit smaller, export-driven petro economies such as Mexico and Nigeria, a circumstance that could lead to “the complete collapse of social order in Venezuela,” according to an investor note by Boris Schlossberg of BK Asset Management.
“It’s hard to forecast what kind of financial shocks the collapse of the energy complex will bring, but if the bankruptcy of the Sinaporean spot oil trading firm Hin Leong Trading is any indication of things to come, investors in the sector are in for a lot more pain,” Schlossberg wrote in Monday’s note.
The International Energy Agency last week predicted that demand for oil would gradually increase during the second half of 2020, anticipating demand will still be down year-over-year by December.
In its earnings report Monday, Energy giant Halliburton said it lost $1 billion during the first quarter of 2020. CEO Jeff Miller said the “dual shock” of dropping demand and oversupply ravaging the industry would cause depressed activity in North America throughout the rest of the year.
“We have been through downturns before. We know what to do and will execute based on that experience,” Miller said in a statement, noting the firm is reducing capital expenditures by $800 million and reducing overhead by $1 billion.
Investors hoping for some good news out of Congress were likely disappointed, as the Senate was unable to agree on a deal to re-up a Paycheck Protection Program under the Small Business Administration.
The $349 billion program, which had been rife with both technical and systemic problems since launch, ran out of money last week. Lawmakers have been working to hammer out a deal for an additional $300 billion to fund the program.
Democrats have pushed for additional funds, with a focus on including a massive increase in testing for coronavirus.
Splits over the program have formed among Senate Republicans. One of its champions, Florida Senator Marco Rubio admitted the PPP had some problems but stressed “this is not a bailout” in a series of video tweets.
“Unfortunately I think there probably is a couple companies that qualified for this and entities that qualified for this who were not what we intended, and that’s a certification that will be tightened up by regulations,” Rubio said.
Senator Rick Scott, another Floridian Republican, also criticized the program for letting larger firms exploit loopholes to obtain funds meant for ailing smaller companies.
“Unfortunately, when it comes to the PPP, millions of dollars are being wasted,” Scott said in a statement. “Right now, companies that are not being harmed at all by the Coronavirus crisis have the ability to receive taxpayer-funded loans that can be forgiven. That’s wrong, and it takes money out of the hands of those Americans who really need it.”
After receiving some backlash, burger chain Shake Shack — which operates nearly 200 locations across the United States — announced Monday it was returning the $10 million it had received under the PPP.
“If this act were written for small businesses, how is it possible that so many independent restaurants whose employees needed just as much help were unable to receive funding?” Danny Meyer, CEO of Union Square Hospitality Group, wrote in a blog post. “We now know that the first phase of the PPP was underfunded, and many who need it most, haven’t gotten any assistance.”
Groups like the National Federation of Independent Businesses have urged lawmakers to earmark at least half the new funds to businesses with 20 or fewer employees.
In a survey Monday, the NFIB found that 80% of small businesses that submitted successful applications had not yet received their funds, with many unsure where they are in the application process.
The Senate is expected to resume work on the infusion of cash for the PPP on Tuesday.