Oil’s meltdown is continuing.
The unprecedented price plunge that hit the main U.S. oil benchmark on Monday spread to other parts of the oil market on Tuesday as traders realized that output remains far too high and storage is running out.
The action on Monday was mostly in the futures contract for West Texas Intermediate crude to be delivered in May, which fell into deep negative territory. The price of that contract actually rose on Tuesday, but it remained in negative territory at about minus $10 a barrel. In other words, some traders are willing to pay buyers to take oil off their hands.
Other parts of the oil market were slammed on Tuesday. The West Texas Intermediate contract for June delivery was down about 22 percent, to about $15.93 a barrel, and Brent crude, the international benchmark, was down about 18 percent, to $20.90 a barrel.
These eye-popping price slides underscore the industry’s disarray as the coronavirus pandemic decimates the global economy. The volatile prices are “an illustration of how broken” the market is, said Paola Rodríguez-Masiu, an oil analyst at Rystad Energy, a consulting firm.
Demand for oil is disappearing, and despite a deal by Saudi Arabia, Russia and other nations to cut production, the world is running out of places to put all the oil being pumped out — about 100 million barrels a day. At the start of the year, oil sold for over $60 a barrel.
Refineries are unwilling to turn oil into gasoline, diesel and other products because so few people are commuting or taking airplane flights, and international trade has slowed sharply. Oil is already being stored on barges and in any nook and cranny companies can find. One of the better parts of the oil business these days is owning storage tankers.
Stocks on Wall Street fell for a second day, as global markets retreated and oil prices continued their record slide.
The S&P 500 dropped about 1.7 percent in early trading Tuesday, adding to a nearly 2 percent drop on Monday. Major European markets were 1 percent to 3 percent lower after a similar decline in Asia.
With few places left to store all the crude the world is producing, oil prices have collapsed. On Monday, the price of one oil benchmark dipped below zero for the first time, meaning some holders were ready to pay people to take a barrel off their hands.
While quirks in how oil is traded accounted for the negative price, it also reflected low global demand for fuel, signaling predictions that much of the world’s economy will remain frozen for some time.
The most closely watched price for oil in the United States, for a futures contract stipulating delivery of West Texas Intermediate crude in June, was trading just under $16 a barrel, well away from negative territory but still down about 22 percent. Brent crude, the global benchmark, dropped about 18 percent, to $20.90 a barrel.
Investors are also processing earnings updates from major companies in the United States. Coca-Cola, for example, said on Tuesday that its global volume had fallen 25 percent this month, largely from a loss of demand at businesses.
Further signaling unease, prices for U.S. Treasury bonds were higher, as investors sought safety in places considered stable.
Coca-Cola said on Tuesday that its global volume had fallen 25 percent this month, largely from a loss of demand at fast-food chains, movie theaters and sporting venues as businesses shuttered amid the coronavirus pandemic.
While the company saw customers stockpile its products in March and a sharp rise in e-commerce sales, it said it was taking a significant hit in “away-from-home” channels, which represent about half of its revenue.
“We’ve been through challenging times before as a company, and we believe we’re well positioned to manage through and emerge stronger,” said James Quincey, the chief executive of Coca-Cola.
The company reported better-than-expected revenue and profit for the first quarter.
For nursing homes, it can be expensive just to keep the doors open.
Nursing homes that were already struggling before the coronavirus outbreak may soon be unable to pay their rent and other bills without government help.
Many have had to spend more money on protective equipment for staff and technology to connect residents with relatives who are no longer allowed to visit. Revenues have shrunk because they are admitting fewer new residents in hopes of reducing the risk of infection.
And even before the pandemic, many were struggling to stay afloat and provide quality care.
For-profit nursing homes often rent their properties under long-term leases from real estate investment trusts, investment firms or private equity shops.
The ownership structure has proved lucrative to investors in major health care real estate investment trusts, which typically own a mix of nursing homes, elder care facilities and medical buildings. But those long-term leases can be problematic during an economic slowdown, because many include clauses to increase their rent every year, according to regulatory filings.
“There wasn’t a lot of wiggle room in these lease deals,” said David Stevenson, a professor of health policy at the Vanderbilt University School of Medicine who has studied the nursing home industry.
On top of that, the coronavirus means added cost. Presbyterian Homes and Services, a Minnesota-based nonprofit operator of 16 nursing homes, estimates that the average 72-bed nursing home is spending an additional $2,265 a day on personal protective gear and an additional $1,500 a day on extra nursing staff.
Sales growth at the Chinese tech giant Huawei slowed sharply in the first quarter, the company said on Tuesday, citing “tough challenges” facing it and its suppliers as they try to maintain production amid the pandemic.
The Chinese smartphone and telecom equipment maker said that revenue in the first three months of 2020 increased by 1.4 percent compared with the same period last year, a comedown from the 19.1 percent annual growth it reported for 2019.
Huawei has been the target of a multifaceted clampdown by the Trump administration, which views it as a national security threat. Last year, the U.S. government filed criminal charges against Huawei and limited American companies’ ability to do business with it.
Huawei on Tuesday did not describe in any detail how the coronavirus was affecting production or sales. But executives have acknowledged recently that the company’s fortunes are being hit by its inability to offer Google apps on its latest-model smartphones, one result of the U.S. government restrictions.
Announcing its latest business results on Tuesday, Huawei did not say how many handsets it sold in the first quarter, a figure it has given in previous earnings announcements.
Huawei is not publicly listed, but it reports selected financial information as a gesture toward openness.
Netflix is expected to report a surge in subscriptions.
How many people just had to see “Tiger King”? We’ll probably find out on Tuesday when Netflix reports its first-quarter earnings after the market closes. With stay-at-home orders in place around the world, stockholders are expecting to see a surge in demand.
Here’s what to look for:
As many as 8.7 million new customers signed up during the first three months of the year, according to Bernstein Research. Before the pandemic, Netflix expected about 7 million.
Most of those are coming from overseas. Netflix has more ground to gain across Europe, Asia and Latin America where people are still discovering the service. For the United States and Canada, expect around 1.4 million new accounts.
Netflix should bring in $5.7 billion in revenue and $739 million in profit, according to a survey of analysts by S&P Capital IQ. But with Hollywood shut down, the company has not been able to fill its pipeline with new content. The streaming service has plenty of films and shows in the can, but the slowdown will affect its lineup later in the year.
Netflix announced last month it would continue to pay its production staff out of a $100 million fund it created to shore up the Hollywood economy.
The slowdown might be a short-term blessing. Netflix normally burns through a ton of cash to fund its content slate. Because the company pays for all of its productions up front — before they are available to watch — it does not account for those costs until later, sometimes a year or more after it has spent the money. That allows Netflix to claim a profit despite spending more than comes in. It’s completely legal, and every media company does it. Netflix just does it on a much bigger scale.
For those who wonder how much that costs, investors estimate Netflix spent $497 million more than came in during the first three months of the year. Of course, that number is likely to be much smaller during the current crisis.
Virgin Australia goes into voluntary administration after being denied a bailout.
Virgin Australia announced on Tuesday that it had entered voluntary administration after the Australian government refused a bailout for the company of 1.4 billion Australian dollars.
The airline, which is among the largest domestic and international carriers in Australia, said it hoped to recapitalize the business to emerge in a stronger position after the coronavirus crisis, but in the meantime would continue to operate scheduled flights transporting essential workers, moving freight and returning Australians home.
“Our intention is to undertake a process to restructure and refinance the business and bring it out of administration as soon as possible,” Vaughan Strawbridge, the company’s administrator, said in a statement. “We have commenced a process of seeking interest from parties for participation in the recapitalization of the business and its future, and there have been several expressions of interest so far,” he said.
The company, which employs more than 10,000 people and flies to 41 destinations, became a significant player in the market following the closure of Ansett Australia in 2002, and its collapse would leave Qantas Airways with an effective monopoly over international travel to and from Australia, experts have said.
“Australia needs a second airline,” said Paul Scurrah, Virgin Australia’s chief executive. “We are determined to keep flying.”
Catch up: Here’s what else is happening.
Hertz, one of the world’s largest car rental companies, said on Monday that it had decided to terminate 10,000 employees in North America because of high rental cancellations and weak bookings related to the coronavirus pandemic. The cuts, which affect about one-third of Hertz’s American work force, will cost the company about $30 million. As of December, Hertz employed 38,000 people worldwide, including 29,000 in the United States.
Reporting was contributed by Raymond Zhong, Matthew Goldstein, Robert Gebeloff, Jessica Silver-Greenberg, Edmund Lee, Livia Albeck-Ripka, Stanley Reed, Clifford Krauss, Vindu Goel and Mohammed Hadi.