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Coronavirus: World shares skid after price of crude oil plunges below zero

Click to play video: 'Crude awakening: Oil prices plummet to negative territory' Crude awakening: Oil prices plummet to negative territory
WATCH: Crude awakening -- Oil prices plummet to negative territory – Apr 20, 2020

World share prices skidded Tuesday after the price of U.S. crude oil plunged below zero, with demand collapsing as the coronavirus pandemic leaves factories, automobiles and airplanes idled.

The extreme volatility in energy markets highlighted investors’ broad concerns about the duration of the pandemic and its impact on the economy, weighing on financial markets more broadly.

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In Europe, Germany’s DAX stock index lost 2.4 per cent to 10,420 and the CAC 40 in France shed 2.2 per cent to 4,428. Britain’s FTSE 100 declined 1.7 per cent to 5,714.

Wall Street looked set for losses, with the future contract for the S&P 500 down 1.3 per cent, while the contract for the Dow industrials lost 1.7 per cent.

A growing glut of oil is pushing storage capacity to its limits, leading to unprecedented drops in crude markets.

The U.S. benchmark’s settled at negative $37.63 per barrel on Monday and on Tuesday, the cost to have a barrel of U.S. crude delivered in May was at negative $7.40 per barrel.

Click to play video: 'Crude oil futures prices turn negative for the first time in history' Crude oil futures prices turn negative for the first time in history
Crude oil futures prices turn negative for the first time in history – Apr 20, 2020

When trading of contracts for U.S. oil to be delivered in May expire on Tuesday, the earliest delivery available will be for June. Analysts consider the June contract to now be closer to the “true” price of crude.

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But even the June contract was falling sharply. It was down $3.85 at $16.58 per barrel, trading as low as $11.79 a barrel at one point.

The tumult in the oil market mirrors volatility in many others and reflects uncertainty over where the world economy will head as governments begin to loosen controls imposed to contain the coronavirus.

“We could merely be in the eye of the hurricane as the epicenters of its rage remain centred around demand devastation and crude oil oversupply,” Stephen Innes of AxiCorp. said in a commentary.

READ MORE: Oil prices are in the negative — COVID-19 rules to stay home played a huge part

“At a minimum, oil prices will be the last asset class to recover from lockdown” and only when travel restrictions are lifted, he said.

Brent crude, the international standard, dropped $4.14 to $21.43. It fell nearly 9 per cent on Monday to $25.57 per barrel.

“The historic drop in WTI prices is an indication of the downward pressure which many other crude oil grades could face, given the oversupply situation,” Sushant Gupta of Wood Mackenzie said in a report.

On the bright side, given the very low prices right now, “It also provides an opportunity for large consuming nations in Asia such as China and India to expedite filling up their petroleum reserves.”

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Gupta said India, for example, still has up to 13 million barrels of spare capacity out of a total of 39 million barrels of storage capacity.

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In stock markets, while share prices have gradually stabilized after wild swings earlier this year, uncertainty over growing numbers of coronavirus cases in Japan and in some Southeast Asian countries has left investors wary about new waves of infections.

Unconfirmed reports Tuesday that North Korean leader Kim Jong Un was in fragile condition after surgery added to the jitters. But South Korea’s government said Kim appeared to be handling state affairs as usual.

Tokyo’s Nikkei 225 stock index fell 2 per cent Tuesday to 19,280.78 while the Hang Seng index in Hong Kong lost 2.2 per cent to 23,793.55. South Korea’s Kospi slipped 1 per cent, to 1,879.38.

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Click to play video: 'Oil prices dive below zero as Saskatchewan producers slash budgets' Oil prices dive below zero as Saskatchewan producers slash budgets
Oil prices dive below zero as Saskatchewan producers slash budgets – Apr 20, 2020

Australia’s S&P/ASX 200 fell 2.5 per cent to 5,221.30 and the Shanghai Composite index gave up 0.9 per cent to 2,827.01.

In a sign of continued caution in the market, Treasury yields remained extremely low. The yield on the 10-year Treasury slipped to 0.57 per cent from 0.62 per cent late Monday.

In currency trading, the dollar edged down to 107.40 Japanese yen from 107.63 on Monday. The euro fell to $1.0831 from $1.0862.

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