Free falling
The week started with a historic plummet in oil prices – May futures for WTI crude expiring on Tuesday turned negative for the first time ever and ended the day on Monday at -$37.63 per barrel. Futures are contracts to purchase commodities (in this case oil) at the contract price at a given time in the future. Part of the price in futures contracts is the cost of physically carrying (aka storing) that product. Nobody had space to actually store the oil because demand has basically been nonexistent while production continued, so inventories were just too large. Buyers were demanding $37.63 from the seller to store the oil (or looking at it from the other side, sellers were literally paying buyers to take the crude off their hands).
Moral of the story: Prices for June contracts did recover in a big way throughout the week on hopes of a supply cut from US producers, but I wouldn’t be surprised if this happens again when these contract near expiration in a month. Until demand comes back, I expect oil prices to remain challenged.
More to come
Last week was another massive week for initial jobless claims as an additional 4.4m people filed for employment benefits last week, bringing the COVID-related job losses to 26m since mid-March. This still includes the impact from issues in many states’ employment filing systems – New York’s system website collapsed this week from being completely overloaded – so the jobless claims number is still slightly understated. While the rate of new unemployment claims is slowing, layoffs are expected to remain in the millions for another few weeks.
Moral of the story: Unemployment is somewhere between 15-20% at this point, the only other time we’ve seen unemployment this high in US history was in the early stages of the Great Depression almost 100 years ago. Yikes.
This and that
Two quick COVID updates this week. First, Trump signed another coronavirus relief bill into law on Friday – this one provides an additional $370B for small businesses, $75B for hospitals, and $25B for COVID-19 testing. This is the fourth coronavirus relief package approved by congress, the total cost is now nearing $3T. Second, a Gilead drug that was rumored to be a potential treatment for COVID-19 last week but according to WHO, the drug didn’t improve conditions or reduce the COVID-19 pathogen in patients’ bloodstreams in a clinical trial in China.
Moral of the story: The fiscal stimulus to help small businesses and the healthcare system survive though this crisis, while massive, doesn’t seem to be enough. The small business funds made available through the CARES Act dried up in a matter of days, before so many small businesses even got a chance to apply – I wouldn’t be surprised if it happens again. Many of these businesses will continue to struggle until we go back to life as we knew it, which can’t happen until there’s a widespread vaccine – so this setback on the Gilead drug potential makes the light at the end of the tunnel seem a little further away.