Oil slides to 18-year low as Covid-19 recession fears hit markets

“For 2021, the IMF looks for a V-shaped recovery. The financial markets, and especially government bond markets, are more circumspect. Bond yields in the major markets are at secular lows, and longer-term inflation expectations remain subdued. S&P earnings and profits expectations are being revised downward in the face of global demand weakness.

For what it is worth, we are skeptical of the V-shaped recovery hypothesis, simply because ending the lockdowns in the various countries will likely be a staggered process.”

A woman wearing a protective mask walks across Waterloo Bridge in front of the City of London financial district.

A woman wearing a protective mask walks across Waterloo Bridge in front of the City of London financial district. Photograph: Hannah McKay/Reuters

The Covid-19 crisis has forced packaging firm Smurfit Kappa and plumbing and heating supplier Ferguson to scrap their dividend payments today.

That means nearly a third of the FTSE 100 members have cut, suspended or cancelled shareholder payments this year, reports Russ Mould, investment director at AJ Bell. That includes the banks (under pressure from regulators), travel firms and airlines

But many of the big dividend payers, including the oil giants, haven’t pulled the plug yet.

The top 20 dividend-paying companies are on track to hand over £54bn this year — giving the FTSE 100 a yield of 3.4%. Small savers, and large investors, will be hoping they still deliver — although the longer the lockdown lasts, the trickier that becomes….

“Of the top 10 payers by actual size of distribution, Shell and BP have both offered trading statements which have emphasised how cuts to capital investment, cost reductions, asset disposals and fresh debt would provide ample liquidity. Shell suspended its buyback programme but neither firm even mentioned the dividends, to suggest Shell and BP seem determined to defend their planned payments.

“The only other one of the top 10 to offer a firm statement is Diageo which has confirmed payment of its interim dividend for the six months to December 2019.

“Further down, Legal & General has brushed aside entreaties from the Prudential Regulatory Authority and declared its intention to pay a final dividend for 2019. Tesco has declared a final dividend and stuck to its plan to pay a special dividend in the second half once the sale of its Thai and Malaysians go through. SSE has repeated its goal of an 80p-per-share distribution, although management did say it would continue to monitor the situation.

“In addition, Prudential is now longer subject to PRA rules and has the Hong Kong Insurance Authority as its regulator, and the hullaballoo in Asia over HSBC’s move to pass on its final 2019 dividend means the insurer will be popular over there if it holds its ground and makes its payments on time.

The opposition Labour Party is not impressed by today’s Covid-19 rescue loan figures:

Ed Miliband, the new Shadow Business Secretary, is alarmed that only 6,020 firms have received support:

“These figures show that the CBIL scheme is simply not working well enough. We need change now. The Chancellor must move to a 100% guarantee of loans for smaller businesses as other countries have done. In this economic emergency, it is the right thing to do.

While a government loan would be welcome, many businesses would also like to claim on their insurance to cover losses from the lockdown.

But there’s bad news — according to the Financial Conduct Authority, few firms are actually protected from this crisis.

And it doesn’t plan to force insurers to cough up unless policies actually cover pandemics.

Back in the UK, British banks have issued a total of 6,020 loans worth £1.1bn through the much-criticised coronavirus business interruption loan scheme.

New figures show the banks have doubled the number of approved applications in just the last week, after a slow start.

The total amount lent to SMEs over the past week also grew by 150% or by £700m.

UK Finance, which released the figures, said around 21% of the 28,460 formal applications have now been approved. However, there have reportedly been 300,000 informal inquiries about the scheme, as small and medium sized businesses scramble for financial support during the lockdown.

UK Finance has not issued any breakdown by bank, to show which lenders may be making greater progress is distributing up to £330bn worth of government backed loans under the CBILS scheme. Royal Bank of Scotland, which is still 62% owned by the taxpayer, has reportedly handed out around 70% of the CBILs loans so far.

The CBILs scheme has been widely criticised, with banks having originally asked business owners for personal guarantees (which was later banned) and lenders having offered most businesses commercial loans at high rates, rather than the 12-month interest-free, government-backed CBILS loans.

The Treasury has since changed its criteria in order to get money out more quickly to businesses who may otherwise fail to survive the Covid-19 lockdown.

Economist Daniel McLaughlin says the markets are anticipating an even steeper recession (so even less demand for crude):

Oil keeps falling, WTI now back below €20, taking equities down as well. The IEA forecast 29mbd fall in April and 23mbd in q2. Consensus economic forecasts shifting to steeper near term plunge in global GDP but still expecting activity to rebound strongly, which may be wrong?

The IEA also fears that oil producers could run out of places to store oil by this summer, unless demand picks up.

With demand expected to plunge by 9 million barrels per day this year (or 9%), the Agency suspects that tanks, ships and pipes could become stuffed with unwanted crude.

It says:

“Never before has the oil industry come this close to testing its logistics capacity to the limit.”

Ouch! International Energy Agency (IEA) executive director Fatih Birol has predicted that April could be the worst ever experienced by the oil industry.

Briefing reporters about the IEA’s new forecasts, Birol explained:

“In a few years’ time, when we look back on 2020 we may well see that it was the worst year in the history of global oil markets.

“During that terrible year, the second quarter may well have been the worst of the lot. During that quarter, April may well have been the worst month – it may go down as Black April in the history of the oil industry.”

Shares are continuing to dip on London, with the FTSE 100 down 2% and the smaller FTSE 250 index shedding 4% today.

There are some risers, though – online supermarket chain Ocado are up 4%, amid strong demand for grocery deliveries.

Insurance group Hastings have gained 3.8%, after reporting a drop in claims for motor accidents recently (as Britons are under firm instruction to stay at home).