Brent crude plunges to 18-year low as oil slump rattles market

Donald Trump’s pledge to help America’s oil industry (without much detail) has helped push US crude prices a little higher.

The poor old US crude contract for May is now $1.4 per barrel, having struggled into positive territory again.

But contracts for June delivery are still weak, with Brent crude down 20% today at $20.39 per barrel (up slightly from this morning’s 18-year low)

Tony Yarrow, co-manager of the Wise Muti-Asset Income Fund, suspects Trump’s White House could help the fracking industry, which is burdened with high debts.

“Two months ago, the world used 100m barrels of oil a day. Today, we are told it is 70m. The deficit of 1.26bn gallons has to be stored somewhere. The world has run out of storage, and prices have collapsed into negative territory for the first time in history.

The situation can only get worse and demand will recover only gradually, so the pressure on producers will persist. To survive this new crisis, producers need a low cost of production and low levels of debt.

Much of the US shale industry is at high risk of failure, with relatively high production costs and very high levels of debt. Would the US administration be prepared to bail the shale industry out? President Trump would be inclined to do so, President Biden less so.”

US home sales tumble, and worse to come

Just in: US home sales have fallen at their fastest rate since late 2015, even before the Covid-19 lockdown hit the economy.

Sales of ‘existing homes’ tumbled by 8.5% in March, the National Association of Realtors reports. Those deals will mostly have been done in January and February – when coronavirus jitters were starting to worry investors, but before the big crash last month.

Lawrence Yun, chief economist for the NAR, fears that the market will slump by 3o% to 40% in the coming months:

“The first half of March held on reasonably well, but it was the second half of March where we saw a measurable decline in sales activity.”

A popular oil exchange traded fund (ETF) has tumbled 25% at the start of trading in New York.

The United States Oil Fund LP is set up to track the daily price movements of WTI crude oil, giving investors exposure to oil price moves without needing a futures account.

The fund, known as USO, is thought to own around a third of outstanding oil futures contracts. It is popular with retail investors, who typically pile in when they think oil prices are near bottom.

Money had flowed into USO earlier this month after oil producers agreed a deal to cut production — which was meant to push prices up.

The slump in prices this week will be very painful for an ETF such as USO, especially given the way that oil futures contracts mature on a monthly basis. That means that a Fund must roll over their contracts to avoid actually owning physical oil (one factor behind yesterday’s crude meltdown).