FTSE 100 down after global oil prices plunge below zero

FTSE 100 opens 1.6% down or 95 to 5,718 points after global oil prices plunged below zero for first time ever – meaning it is more expensive to store than pump

  • FTSE 100 index of UK’s biggest companies falls 95 points or 1.63% to 5,718 today
  • Benchmark measure for crude in the US drops to minus $35.20 (£28.30) a barrel
  • Oil producers are now paying buyers to take barrels off their hands during crisis
  • Collapse comes amid signs of a slow and difficult recovery from the pandemic 
  • Learn more about how to help people impacted by COVID

London stock markets fell today after oil prices plunged below zero for the first time ever as demand for energy collapsed during the coronavirus pandemic.

The FTSE 100 index of Britain’s biggest companies was down by 95 points or 1.63 per cent to 5,718 shortly after opening this morning.

The fall in share prices comes after the benchmark measure for crude in the US plummeted last night to minus $35.20 (£28.30) a barrel, although it did bounce back into positive territory today.

The plunge was highly symbolic of the devastating effect Covid-19 has had on the economy, with oil producers now paying buyers to take the barrels off their hands.

PAST FORTNIGHT: The FTSE 100 has risen overall in the past fortnight, but fell this morning

The collapse also comes together with more signs of a slow and difficult recovery from the pandemic, following more warnings from the World Health Organisation.

It said that any lifting of lockdowns to contain the spread must be gradual, and if restrictions were to be relaxed too soon, there would be a resurgence of infections.

Hong Kong’s government said it will extend restrictions aimed at tackling the coronavirus for another two weeks.

German Chancellor Angela Merkel cautioned shoppers rushing to just-reopened stores that lockdown measures could be tightened again if fresh cases arise.

A woman wearing face mask walks past a board showing the Hong Kong Stock Exchange today

And in the US, a return to work is looking increasingly chaotic, as some states relax lockdowns while others urge caution as protesters demand an end to restrictions.

Demand for oil has collapsed so much that facilities for storing crude are nearly full, drastically affecting the price of contracts being signed now for May.

It is also expensive for producers to shut down production, so they were willing to pay a premium for people to take the oil they extract.

Neil Wilson, chief market analyst at Markets.com, said: ‘I never thought I would see the day when oil would be this low.’

The New York Stock Exchange on Wall Street is pictured yesterday as US markets plunged

The plunge in oil sent energy stocks in the US’s S&P 500 index to a 3.7 per cent loss, the latest in a dismal 2020 that has caused their prices to nearly halve.

The Dow Jones lost 592 points, or 2.4 per cent, falling to 23,650, and the Nasdaq dropped 89, or 1 per cent, to 8,561.

The historic plunge below zero rattled investors overnight, triggering the steepest drop in Asian stock markets in a month.

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 2 per cent, along with stock markets in Sydney, Hong Kong and Shanghai, while India lost 3 per cent.

Why oil prices have plunged below zero as buyers purchase stock that would be delivered in June

Oil prices plunged below zero for the first time ever last night as demand for energy collapsed during the pandemic.

The benchmark measure for crude in the US plummeted to minus $35.20 (£28.30) a barrel. It means the country’s oil producers are paying buyers to take the barrels off their hands.

Much of the plunge was chalked up to technical reasons to do with the highly complex oil market – but was also highly symbolic of the devastating effect Covid-19 has had on the world economy.

Here is a guide to why the oil price has fallen so low:

HAS THE PRICE OF OIL EVER GONE NEGATIVE BEFORE?

Sometimes, the price on the future delivery of oil will get skewed by a surprise event, such an oil pipeline bursting. 

That can cause the price of a futures contract for a given month to be sharply higher or lower than that of the futures contract for the next month.

Usually, this is smoothed out by the market, but the sharp pullback in demand combined with a glut of oil has led to a dearth of oil storage capacity. 

That made it hard for traders with contracts for crude delivery in May to find buyers, which sent the contract price into negative territory.

ARE OIL COMPANIES PAYING PEOPLE TO TAKE AWAY THEIR CRUDE?

While some companies may be paying others to take away their crude oil, that does not appear to be widespread.

Many analysts described the dip in crude oil prices as technical, related to the way futures contracts are written. Most buyers are currently purchasing oil that would be delivered in June, not May.

Even so, there were more than 150,000 of those futures contracts that traded hands, enough volume to make it meaningful.

WHAT’S GOING ON WITH OIL STORAGE?

With far less petrol and jet fuel being consumed, oil tanks are filling up. Experts have warned that global storage could fill up in late April or early May.

That has led some producers to decide to move oil now, because the space may become more valuable than the oil.

WHERE WILL THE OIL GO?

With many oil tanks filling up, the federal government is negotiating with companies to store crude oil in the Strategic Petroleum Reserve. 

But if all the storage tanks are full, oil companies will begin shutting in wells, which can damage oil fields. Many tankers are full of oil and floating at sea.

WHY DIDN’T THE OPEC DEAL FIX THIS?

Earlier this month, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, with political pressure from the US government, agreed to cut production by nearly 10 million barrels per day – about 10 per cent of current global output. 

But some analysts feel the deal didn’t go far enough to curb massive oversupply. It kept prices from falling farther for the time being, but there’s still too much oil in the world.

HOW WILL THIS AFFECT THE PRICE OF PETROL?

Cheap oil leads to cheaper prices at the pump, which are often viewed as a boon for consumers.

It was unclear last night whether the oil slump in the US would have a major impact on prices at pumps in the UK.

The average price in the US for a gallon of regular petrol fell to about $1.49 or less, more than $1 less than a year ago.

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