US crude oil futures for May crash to negative US$38/barrel as storage tanks fill up, US stocks fall again, and Mercury lowers its profit view as lake levels fall and power demand falls 15 percent
Going negative: US crude oil futures for May crashed below zero for the first time ever to trade at minus US$37.63 a barrel overnight as traders sold the contracts heavily on reports that storage tanks are almost completely full at the key Cushing, Oklahoma delivery point (picture below), Reuters reported.
Demand dried up: “Normally this would be stimulative to the economy around the world,” said John Kilduff, partner at hedge fund Again Capital LLC in New York. “It normally would be good for an extra 2 percent on the GDP. You’re not seeing the savings because no one is spending on the fuels.”
Say what? A negative oil price means sellers have to pay buyers for oil futures. Normally, when an oil futures contract expires, the trader will either take physical delivery of the oil or roll their position into another futures contract. Reuters reported this time there were very few counterparties that would buy from investors and take delivery of the oil.
Quote du jour: “Pricey shut-ins or even bankruptcies could now be cheaper for some operators, instead of paying tens of dollars to get rid of what they produce,” said Louise Dickson, oil markets analyst at Rystad Energy.
Shares down, kiwi up: After pushing higher at the open the NZX50 closed near its lows yesterday at 10,763 down 0.15 percent after Prime Minister Jacinda Ardern announced the Level 4 lockdown would be extended for a further five days. While the sharemarket was weaker on the news, the Kiwi dollar spiked higher moving from 60.22 immediately before the announcement to 60.51 US cents after it. Ardern said the move to Level 3 next week will mean a number of industries including construction and takeaway food operations can resume trading.
See you in court: Retirement village operator Metlifecare is gearing up for a legal stoush demanding that Asia Pacific Village Group (APVG) complete its $1.49 billion takeover deal which the company is now attempting to back out of citing the Covid-19 pandemic as a “material adverse change”.
Pay up: In a statement to the NZX, the company said it expected APVG to honour its obligations under the Scheme Implementation Agreement, which it willingly entered into, and based on the advice Metlifecare had received it saw no legal basis for APVG to back out of the deal agreed in December last year. It’s shares closed up 6.2 percent on the news at $4.30.
Bank lending surges: Figures from the NZ Bankers Association showed the country’s major trading banks lent $7.5b extra in new loans to businesses and individual borrowers since the country went into lockdown almost a month ago. A total of 13,559 business customers borrowed a total of $5.5b with the balance of $2b going to 21,772 individual customers. Another 13,549 business customers have moved to either interest-only or reduced-principal repayments and interest on $17.4b of existing loans with a further 3,053 businesses deferring all repayments on $1.6b of loans.
Reducing payments: Among consumers, almost 44,000 have moved to either interest-only or reduced principal repayments and interest on $15.4b of loans and another 42,212 have deferred all repayments on $15.5 billion of loans. Figures for the Government’s business finance guarantee scheme are expected to be made available next week.
Valuations decline: Kiwi Property Group, the country’s largest diversified property company, reported an 8.5 percent decline in the value of its property portfolio, saying its regional shopping centres had been hit the hardest.
Taking a hit: It’s commercial portfolio valuation was lowered by $290 million to $3.1 billion by independent valuers. Of that, its mixed-use portfolio – which includes Auckland’s largest shopping centre Sylvia Park Mall – fell 10.6 percent, or $177 million, and its retail portfolio was down 20.8 percent, or $126 million. The value of Kiwi’s office portfolio rose 1.6 percent, or $15 million. It’s shares closed unchanged at $1.01.
Second downgrade: Mercury NZ has cut its full-year earnings guidance for a second time in less than two months, citing declining hydro-electric water storage in the North Island and demand reductions due to covid-19. The electricity generator and retailer said it expected full-year EBITDA of about $490m which is $10 million less than it forecast in February.
Less power demand: Mercury said the revised forecast also reflected a “preliminary assessment” of the covid-19 impact, which had reduced national electricity demand by about 15 percent since the March 26 lockdown. It’s shares closed up 1 percent at $4.44.
Locked and loaded: Engineering and infrastructure management services company Downer EDI confirmed it had entered into a new $500m Syndicated Bank Facility. The new facility, provided by four of Downer’s long-term relationship banks, is a committed revolving facility with a scheduled maturity date of July 2022. The new facility will refinance Downer’s $200m Syndicated Bank Facility maturing in April 2021 and provide additional liquidity of $300m.
More funding needed: A new round of funding for desperate small businesses in the U.S. is expected to be approved in the coming days. Congress is hoping to agree on US$300b of additional money for the Paycheck Protection Program, designed to provide loans to businesses shuttered by coronavirus restrictions.
Small guys miss out: However, some small businesses are finding themselves short-changed by the program after its initial $349 billion allocation was exhausted in just 13 days. Many small business owners faced rejection while larger establishments, including popular takeaway giants Shake Shack and Potbelly Sandwich Shop, landed multi-million-dollar loans.
In trouble: Neiman Marcus, the heavily indebted U.S. luxury department store chain looks set to become the first major retail causality of the global covid-19 pandemic. The company, which missed a major bond payment last week, also owns the New York luxury goods department store Bergdorf Goodman as well as its namesake brand.
Too much debt: The 112-year-old business carries one of the heaviest debt burdens in the U.S. retail sector with outstanding debts of US$6.1 billion resulting from its 2005 leveraged buyout and subsequent sale in 2013 to private equity firm Ares and the Canada Pension Plan Investment Board. The Dallas based company has closed all its stores and either furloughed or cut pay for most of its 14,000-strong workforce.
