COVID-19 Daily Update: April 21, 2020

The coronavirus crisis is a series of historical firsts for global communities, economies, and markets alike. The implications are complexly interconnected: Surging infection rates are straining health systems and grieving nations, forcing lockdowns and freezing economies, roiling stock markets and causing a collapse of the oil market like nothing experienced ever before.

Yesterday’s shocking oil price crash into negative territory sent shivers through major U.S. stock indexes and suggests that investors are newly concerned about the chaos caused by the coronavirus crisis after shrugging off dismal economic forecasts and dramatic jobless claims.

The benchmark S&P 500 Index dropped 3.1%, and the Dow Jones Industrial Average sunk 2.7% after a two-week rally that brought equities out of bear-market territory.

The expiring May futures contract for West Texas Intermediate crude spiked $47.64/b today to settle at $10.01/b, according to S&P Global Platts. But June crude futures plunged below $12/b as storage continues to grow because of low demand caused by the coronavirus outbreak. The June contract fell $8.86 (or 43%) to settle at $11.57/b after dipping to as low as $6.50/b. ICE June Brent fell almost 25% and settled at $19.33/b, down $6.24/b on the day. S&P Global Platts’ crude benchmark Dated Brent fell below $15/b.

“When will we get back to the new normal? We will get that when we start to see supply and demand rebalancing in the market. And that may not be until August, September time,” Chris Midgley, S&P Global Platts’ Global Director of Analytics, said on the news episode of The Essential Podcast, commenting on how expiring contracts, paper traders, full storage capacity, and a collapse in demand conspired to send oil prices into negative territory for the first time ever.

OPEC delegates told S&P Global Platts that the organization is looking to President Donald Trump to see if the U.S. leader will push OPEC into a tougher deal than the 9.7 million b/d production cut he assisted in negotiating nine days ago. President Trump voiced his intention to help the U.S. oil and gas industry through a financial rescue package on Twitter today. Experts say governments will likely intervene to keep U.S. oil and gas companies operating, according to S&P Global Market Intelligence.

Unchanged in the coronavirus crisis is a focus on environmental, social, and governance (ESG) factors. The oil-price rout is accelerating attention on the energy transition. The crisis is giving Germany an early glimpse of a future without coal as many of the nation's large fossil-fuel generators are operating with minimal output or are closed completely. Industry officials emphasized the potential of hydrogen in Europe’s energy system as part of a more rapid effort to decarbonize during the COVID-19 recovery.

“The post-COVID-19 recovery plan in Europe must support carbon-neutral industry," European Parliament member Christophe Grudler said during a webinar organized by EU gas industry body Eurogas, according to S&P Global Platts.

Yesterday, S&P Global Market Intelligence reported that CEOs taking salary cuts during this crisis can be seen a benevolent reputational move, in line with positive social ESG behavior. Today, an S&P Global Market Intelligence analysis of insider-trading disclosures among all publicly traded banks with at least $10 billion in assets shows that some bank executives have spent millions buying up their company's stock since the coronavirus sell-off.

S&P Global Ratings believes the coronavirus pandemic is highlighting why stakeholders matter and expects stakeholder management will become a factor of ratings decisions in the future.

More than 2.5 million cases of coronavirus are confirmed worldwide and almost 177,000 people have died, according to Johns Hopkins University data.

“The worst is yet ahead of us,” World Health Organization Director-General Tedros Adhanom Ghebreyesus said at a news conference yesterday. He warned that “ending the epidemic will require a sustained effort on the part of individuals, communities, and governments to continue suppressing and controlling this deadly virus… So-called lockdowns can help to take the heat out of a country’s epidemic, but they cannot end it alone. Countries must now ensure they can detect, test, isolate and care for every case, and trace every contact.”

Today is Tuesday, April 21, 2020, and here’s an overview of today’s essential intelligence.

OIL MARKETS IN CRISIS

PODCAST OF THE DAY

The Essential Podcast, Episode 6: Oil Demand Part Deux – Prices Under Water

S&P Global Platts' Global Director of Analytics Chris Midgley returns to The Essential Podcast to explain how expiring contracts, paper traders, full storage capacity, and a collapse in demand conspired to send oil prices into negative territory for the first time ever.

Listen and subscribe to this podcast on Spotify, Apple Podcasts, Google Play, Google Podcasts,  Deezer, and our podcast page. 

—Listen to the latest episode of The Essential Podcast from S&P Global

NYMEX June crude plunges below $12/b as storage fills

NYMEX June crude futures plunged below $12/b Tuesday as storage continues to grow because of low demand caused by the coronavirus outbreak. The June contract fell $8.86, or 43%, to settle at $11.57/b, after dipping to as low as $6.50/b. "This is a historic, spectacular sort of drop," said Jamie Webster, senior director at Boston Consulting Group's Center for Energy Impact. "The market figured out this whole crunch is going to continue next month, so most of it is happening now." Weakness was seen out along the curve, with the NYMEX June 2021 contract settling below $30/b, and the contango structure remaining in place.

—Read the full article from S&P Global Platts

China's March oil product output slumps 13% on year at 33.85 mil mt

China's overall output of six major oil products -- LPG, naphtha, gasoline, jet/kerosene, gasoil and fuel oil -- fell by an average of 12.5% year on year at 33.85 million mt in March, the lowest monthly output since October 2014, and heavier than the 6.6% decline in crude throughput during the month, latest data from the National Bureau of Statistics, or NBS, showed Tuesday. NBS did not release the monthly output data for January and February. The total volume of the six major oil products accounted for 67.6% of total crude throughput in March, down from 72.2% a year ago, NBS data showed.

—Read the full article from S&P Global Platts

Market meltdown puts pressure on OPEC+ to seek deeper cuts

As oil prices continue to wilt before a much-hyped global supply accord takes effect in May, OPEC is keeping an eye on US President Donald Trump, awaiting cues that he may strong-arm the organization into a tougher deal than the one he helped broker nine days ago. Already, Saudi Arabia and allies the UAE and Kuwait are under pressure from their smaller counterparts in the OPEC+ coalition to do more to right the coronavirus-impaired oil market. The core Persian Gulf producers are being blamed for exacerbating an already oversupplied market by pushing their crude production to what they readily trumpet as record levels. Some OPEC+ members are calling for deeper production cuts to be implemented immediately instead of waiting until May.

Several ministers held informal discussions via videoconference Tuesday, according to the OPEC secretariat. "The Saudis must fix this," one delegate said, while another said: "Any more cuts have to come from the big guys. We can't afford to cut any more." The delegates spoke on the condition of anonymity because multilateral talks are ongoing.

—Read the full article from S&P Global Platts

Trump says US will offer oil, gas sector relief from market collapse

Oil futures appeared to shrug off President Donald Trump's promise Tuesday to develop a financial rescue package for oil and gas producers after Monday's staggering selloff amid plunging demand and dwindling storage options. "We will never let the great U.S. Oil & Gas Industry down," Trump said on Twitter. "I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!"

A lack of US oil storage capacity led Monday to the front-month NYMEX WTI contract settling in negative territory at minus $37.63/b, down $55.90/b from Friday. The contract had never before traded in negative territory, and the previous record low front-month settlement was $10.42/b on March 31, 1986. At 1400 GMT Tuesday, NYMEX May crude was trading at around $1.40/b, having bounced in overnight trade. The June contract was trading around $15.64/b. The May contract expires Tuesday. Trump on Monday reiterated plans to fill the US Strategic Petroleum Reserve to take advantage of record-low oil prices, but he gave no new details on how the administration would buy the crude without approval from Congress. He said oil prices were "at a level that's very interesting to a lot of people."

—Read the full article from S&P Global Platts

For oil and gas, the key to survival may be an old foe: government

With the oil market choking on crude it cannot sell in a crashing global economy and a financial market punishing the big-spending ways of oil companies, it is becoming more likely that governments will intervene to keep U.S. oil and gas companies operating, experts said. Responding to the coronavirus-induced oil market collapse, a conservative Trump administration has brokered a deal with OPEC to prop up prices, committed to buying oil for the Strategic Petroleum Reserve, contemplated tariffs on imported oil, backstopped junk-rated debt and floated a proposal to keep oil in the ground. Meanwhile, lawmakers from Appalachian shale states are putting pressure on the U.S. Treasury Department and Federal Reserve to give heavily indebted shale gas drillers access to coronavirus relief funds to pay immediate interest payments.

—Read the full article from S&P Global Market Intelligence

Oil price collapse a 'body blow' for North Sea oil and gas sector, industry chief warns

The collapse in global crude prices, led by the US, is a "body blow" for the North Sea industry, and government help will be needed to protect the sector, industry group Oil & Gas UK's chief executive Deirdre Michie has said. In a statement after the US WTI contract for May plunged into negative territory, spurring a plunge in Brent prices, Michie said the North Sea industry would not escape unscathed.

"While we have anticipated continued pressures on oil markets, there's no getting away from the fact that this situation is a body blow for an industry already creaking under the strains of the impact of COVID-19 and sustained low commodity prices," Michie said in a statement after Monday's price rout in the US.

—Read the full article from S&P Global Platts

Insight from Moscow: Russia crude output forecasts slashed on coronavirus, OPEC+ deal

Russia agreed to take unprecedented volumes of crude off the market under a new OPEC+ agreement in April, in response to dire crude demand forecasts and storage concerns. Russia has signed up to cut 2.5 million b/d in May and June, 2 million b/d from July to December, and 1.5 million b/d from the start of 2021 to the end of April 2022. Its baseline for these cuts is 11 million b/d.

These volumes are significantly greater than Russia’s commitments under previous OPEC+ agreements, and pose a major challenge for Russian oil companies. Due to Russia’s difficult climate conditions, and the advanced age of many fields, producers have long claimed that altering output volumes at their projects is technically complex and requires some time. There are fears that wells that are shut in now may never produce again. Russian energy officials and producers have said they are willing and able to meet these targets, however. Russian analysts said they likely don’t have much choice, with prices low and demand forecasts so negative that producers would have had to make significant cuts, with or without the deal.

—Read the full article from S&P Global Platts

VIDEO OF THE DAY

Watch: Market Movers Asia, Apr 20-24: Tussle for Asian oil market share ahead?

The highlights in Asia's commodity markets this week: All eyes are on official selling price announcements, India's extended lockdown has been a boon for the clean tankers, and bearish sentiment is expected in the Asian palm market. Also in this episode: Seaborne thermal coal traders are looking out for news on potential output cuts in Kalimantan, spot LNG prices in Asia remain under pressure, and BHP to release its iron ore exports report.

—Share this Market Movers video from S&P Global Platts

Read S&P Global's digest on oil markets in crisis, updated daily with the latest news on the evolving situation >>

ESG IN THE TIME OF COVID-19

Cross currents: Big oil and the energy transition

Well before the oil price rout caused by the coronavirus pandemic, commentators and shareholders were calling on Big Oil to make step-out energy transition acquisitions. Now, with economies in lockdown and corporates fighting to survive, the oil sector’s incremental move into new energy looks over-cautious. As the value of their fossil fuel assets tumbles, the coronavirus lays bare these companies’ exposure to a world of massively smaller oil and gas demand, offering a glimpse of the EV revolution to come. And environmental groups are keeping the pressure on oil companies during the crisis even as they cut capital spending, arguing that once economic activity picks up again, new investment should be channeled into stable renewable energy jobs. The new strategies on display raise questions about how far – and how fast – the giants of fossil fuel production are willing to go in their pursuit of decarbonization.

—Read the full article from S&P Global Platts

Hydrogen should be promoted as part of EU coronavirus exit strategy: industry

The role that hydrogen can play in Europe's energy system should be encouraged by market players with an increased urgency, industry officials said Tuesday, as the coronavirus crisis opens up the opportunity for a more rapid pathway to decarbonization. Speaking during a webinar organized by EU gas industry body Eurogas, officials agreed that the recently launched European Industrial Strategy could be revisited to take into account changes in market dynamics since the coronavirus outbreak.

Eurogas Secretary General James Watson said during the webinar that there was a new urgency brought on by the coronavirus crisis on what should be done to accelerate decarbonization. "There needs to be a stronger focus on what we want to come out of the COVID-19 era," Watson said. Demand for energy has plunged due to the lockdown measures introduced by governments across Europe.

—Read the full article from S&P Global Platts

Coronavirus crisis gives Germany early glimpse of a future without coal

With Germany's exit from coal power on the horizon, the coronavirus crisis has already shown Europe's largest economy what its electricity mix could look like without the fossil fuel and might even speed up the phaseout process. As industrial power demand plummets, driven by countrywide lockdowns, many of the nation's large fossil fuel generators have been powered down to minimal output or even shut completely.

—Read the full article from S&P Global Market Intelligence

Green bonds suffer setback amid market rout but long-term demand to stay strong

Green bonds have suffered a setback as investors shunned debt markets amid the coronavirus pandemic, but experts say the sustainable debt instrument is showing signs of bouncing back, with recent issues heavily oversubscribed as issuers return to market. Demand over the long term will resume its upward trend as investors tap the bonds for their preferential pricing, issuers maintain their climate change projects and governments use the instrument to jump start economies, experts say. Although a tiny fraction of the overall debt market, green bonds — debt that finances environmentally friendly projects such as wind farms or solar power — have grown rapidly over the last eight years, from virtually nothing in 2012 to $254.9 billion in 2019, based on figures from the nonprofit Climate Bonds Initiative, which promotes green investment.

—Read the full article from S&P Global Market Intelligence

COVID-19: A Test Of The Stakeholder Approach

In August 2019, the U.S. Business Roundtable adopted a new standard for corporate responsibility. It changed its "Statement on the Purpose of a Corporation" to a broad commitment to all stakeholders--customers, employees, suppliers, communities, and shareholders--from shareholder primacy. In a similar vein, France in May 2019 enacted the PACTE law that obliges corporate management to take into consideration "social and environmental issues" alongside other objectives and encourages them to enshrine social objectives in their purpose ("raison d'être") in their bylaws.

Such developments, while welcomed by many, were sometimes received with a degree of skepticism. Would companies really translate these principles into a fundamental change in the way they operate? Would these principles contribute to a more sustainable and prosperous future?

Less than a year later, the coronavirus pandemic is highlighting why stakeholders matter. Insufficient consideration paid to all stakeholders in decision-making is backfiring on a number of companies. In contrast, other businesses are taking actions that may ultimately strengthen employee engagement, brand, and reputation. While nearly all the rating actions we've taken during this time have been driven by the impact of the lockdown on revenue and cash flow, we believe that might change. We expect that differences in stakeholder management will ultimately play into a number of future rating actions, especially where companies differentiate themselves materially from their industry peers and this in turn has a bearing on creditworthiness that is observable over time. Corporations that better embed stakeholder considerations in their decision-making and strategy will likely limit unintended consequences and be more resilient over time.

—Read the full report from S&P Global Ratings

Wells Fargo leads the way among bank insider purchases following sell-off

Some bank executives have spent millions buying up their company's stock since the coronavirus sell-off. Over the course of March, executives and directors at Wells Fargo & Co. spent the most on their own company's stock with $6.0 million of purchases and no sales, according to an S&P Global Market Intelligence analysis of insider trading disclosures among all publicly traded banks with at least $10 billion in assets. The analysis was limited to open-market or private purchases or sales, excluding other transactions such as grants or gifts.

—Read the full report from S&P Global Market Intelligence

Read S&P Global's digest on ESG in the time of COVID-19 >>

INDUSTRY AT RISK

Care providers may need $100B more as industry faces further COVID-19 losses

While Congress set aside $100 billion for healthcare providers impacted by the coronavirus pandemic, hospital representatives and experts believe that at least another $100 billion will be needed to prop up the industry. As the outbreak continues to intensify in the U.S., hospitals and healthcare providers are experiencing financial losses due to the canceling of elective and non-essential services and also the need to ramp up staff and supplies in preparation for a possible surge in coronavirus patients. Canceling non-emergent procedures — which is being used to stop the spread of the virus and conserve resources such as staff, supplies and hospital beds — has taken a lucrative business line away from the industry, said Rick Gundling, senior vice president of healthcare financial practices for the Healthcare Financial Management Association.

"It's a very big hit because so much of the non-emergent surgeries are also some of the ones that bring higher revenues to the facility to offset some of the emergency care, charity care, community benefit costs that a hospital does," Gundling said in an interview. Provider revenues are likely to drop by 25% to 40% per month due to postponed or canceled procedures, straining cash flow significantly, according to an April 3 analyst report from Moody's.

—Read the full article from S&P Global Market Intelligence

Probability of default jumps for automakers as COVID-19 hits production, sales

The odds of default for automakers spiked in April from January as the industry grapples with lower vehicle demand and temporary production shutdowns during the coronavirus pandemic. S&P Global Market Intelligence's median one-year market signal probability of default rose to above 20% for automakers in early April, up from below 5% at the beginning of 2020. The figure represents the odds that a company will default on its debt within the next year based on fluctuations in the company's share price and other country and industry-related risks.

Experts predict a tough road ahead for automakers as vehicle demand drops sharply while consumers stay home and companies have shuttered plants to keep workers safe. The turmoil has caused several automakers to withdraw earnings guidance for 2020 and issue profit warnings. Japan's Nissan Motor Co. Ltd., U.S.-based Ford Motor Co., and Germany's Daimler AG are some of the top carmakers with the highest one-year probability of default, according to Market Intelligence data.

—Read the full article from S&P Global Market Intelligence

March auto sales fell in major markets as coronavirus continued to spread

The ongoing coronavirus pandemic continued to hit new vehicle sales in March as major auto markets — including the U.S. and Europe — posted double-digit declines year over year, according to an S&P Global Market Intelligence analysis. New vehicle sales dropped year over year in the U.S. as measures to stop the spread of the virus have shut down production sites across the country and kept consumers at home. The overall non-seasonally adjusted U.S. vehicle sales declined 37.7% to 992,392 units in March from 1.60 million units a year ago, according to data released by the Bureau of Economic Analysis. Passenger car sales in the U.S. for the period dropped 45.5% to 262,981 units from 482,556 units in the year-ago period. Sales of trucks, minivans and SUVs for the period totaled 729,411 units, down 34.7% from 1.12 million units in March 2019.

—Read the full article from S&P Global Market Intelligence

Food companies make tough shift to supply grocers as COVID-19 closes restaurants

Coronavirus has sown chaos in food supply chains in a matter of weeks as consumers avoided restaurants and turned to grocery stores for a greater share of food purchases. Now, the companies that process and distribute food are figuring out how to catch up.

Foodservice distributors and manufacturers who sold their products to restaurants have suddenly found themselves with products never intended for sale directly to consumers, leading many to improvise in order to recover some of the lost revenue. But industry and supply chain experts say that will be a tall order since shifting sales to retail channels comes with costs, and even then, retail sales will not necessarily make up entirely for lost foodservice revenue. Food sold commercially to restaurants such as Yum! Brands Inc.'s KFC cannot be easily shifted to grocery stores because it is often packaged differently and requires different approvals, Rob Handfield, a supply chain management professor at North Carolina State University, said in an interview.

—Read the full article from S&P Global Market Intelligence

Work-from-home boom amid COVID-19 forcing enterprise security changes

With an unprecedented number of employees working from home, the coronavirus pandemic is forcing companies to think differently about network security, potentially ushering in a new wave of innovation in the space. While most companies had already begun the process of digitizing their workflows and communications, the new normal of a widely distributed remote workforce is creating problems for companies big and small. "Most organizations have not prepared for remote access at the scale we're seeing right now," 451 Research information security analyst Scott Crawford said in an interview.

—Read the full article from S&P Global Market Intelligence

Written and compiled by Molly Mintz.