It would almost be an understatement to call yesterday’s plunge in oil prices an oil shock, the one-day decline was so big that most traders needed time to wrap their heads around the idea of negative oil prices.
But the spectacular decline is just temporary – it was caused by the Tuesday expiry of the May WTI contract and though the plunge has sent a negative message about the state of the near term oil market, below zero oil is not the kind of price that we will be seeing regularly going forward, at least not on dates other than pre-expiry dates.
Crude is trading in a more realistic territory this morning with Brent at $22.50 and WTI at around $20, close to March lows.
All the FTSE extracting companies have been hit, miners like BHP, Rio Tinto (LON:RIO), Glencore (LON:GLEN) and oil majors are all trading lower, dragging the whole index down. Ironically, for miners a low oil price is a positive as it part of their cost base but a warning from BHP, the world’s largest miner, that global steel production excluding China will be significantly lower this year sapped the risk appetite from the mining stocks.
Primark owner ABF lost almost 5% after it reported a nearly 50% decline in pretax profit for six months to the end of February. What makes the numbers especially worrying is the fact that the six months don’t cover the period under lockdown, suggesting that UK high street sales had been eroded before the corona virus to a larger extend than previously visible.
Gold producers rally
Corona defensive stocks like gold producers, supermarkets and food delivery groups are back in investors’ favour and are providing some counterbalance to the declines.
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