West Texas oil plunges more than 300%, Dow crashes 590 points

The ASX had one of its worst days of the last month on Monday with the S&P/ASX 200 Index plunging 134 points or 2.5% to close at 5,353.

Central to the fall was negative sentiment towards the energy sector, a factor that is likely to continue to weigh on the market on Tuesday.

However, the most stunning data to emerge last night was the fall in the oil price into negative territory as West Texas Intermediate Crude hit the lowest level on record.

For the first time in history crude oil prices fell into negative territory as West Texas Intermediate, the US benchmark, traded as low as negative US$40.32 per barrel in a day of chaos in oil markets. The settlement price on Monday was -US$37.63, compared to US$18.27 on Friday.

The world is awash with oil, and with storage capacity in refineries diminishing and demand remaining suppressed, it is hard to see a way forward.

As contracts expire (which in the case of May contracts is Tuesday), it isn’t unusual to see some volatility as those holding contracts that are soon to expire look to offload them quickly.

However, with no opportunity for potential buyers to quickly on-sell oil, demand dried up and traders dumped the May contract.

In the wake of this, the Brent Crude Oil Continuous Contract held up reasonably well, falling more than 5% from about US$28 per barrel to US$26 per barrel.

The extreme uncertainty triggered a 15% increase in the CBOE Volatility Index as it closed at 43.8 points, still on the rise as the market closed.

There are other issues at play too, with extremely unsettling news coming out of the US.

Not only are markets in a state of disarray and the oil price is still plunging, there is unrest in the streets with gun toting anti-quarantine groups working in organised crime style.

Disturbingly, a significant proportion of this unrest can be attributed to the country’s president who called on his people to liberate their states as the Washington Post reported last night:

‘’A trio of far-right, pro-gun provocateurs is behind some of the largest Facebook groups calling for anti-quarantine protests around the country, offering the latest illustration that some seemingly organic demonstrations are being engineered by a network of conservative activists.

“The Facebook groups target Wisconsin, Ohio, Pennsylvania and New York, and they appear to be the work of Ben Dorr, the political director of a group called ‘Minnesota Gun Rights’, and his siblings, Christopher and Aaron. By Sunday, the groups had roughly 200,000 members combined, and they continued to expand quickly, days after President Trump endorsed such protests by suggesting citizens should ‘liberate’ their states.’’

Dow falls nearly 600 points

These dour times were reflected in the US indices with the Dow falling 592 points or 2.4% to 23,650 points, leaving much of last week’s hype behind.

The S&P 500 fell 1.8% to 2823 points and the NASDAQ shed 1% to close at 8560 points.

European markets bucked the trend with FTSE 100 gaining 25 points to close at 5812 points. The DAX was up nearly 0.5% or 50 points to 10,675 points. The French CAC 40 led the way with a gain of more than 0.6% pushing it to a close of 4528 points, only 15 points shy of a near one month high.

While Asian markets were generally weak yesterday, they weren’t as severely affected as we were in Australia.

The Nikkei 225 fell 1.1% or 228 points to close at 19,669 points. The Hang Seng shed 0.2% to close at 24,330 points while the Shanghai Composite gained 0.5%, closing at 2852 points.

Gold rallies in uncertain times

The sense of uncertainty saw gold re-emerge as an investment of choice after falling some US$100 per ounce late last week. Last night it hit a high of US$1,718 per ounce before settling just below that level at the end of trading.

Iron ore was up 1.5% to US$87.45 per tonne.

On the base metals front, nickel continued its strong run, hitting US$5.58 per pound.

It has now increased more than 10% in the last month, and this hasn’t been missed by Australian investors who have targeted stocks such as Independence Group (ASX: IGO) and Western Areas (ASX:WSA) with the share prices of both companies having gained more than 30% during that period.

The Australian dollar lost ground against the US dollar and is now hovering just above US$0.63.

Not surprisingly, the ASX SPI200 futures index is pointing to a fall of 53 points, currently sitting at 5,311 points.