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A chaotic night on oil markets points to further weakness for Australian stocks as the coronavirus pandemic sent fresh shockwaves through financial markets.

ASX SPI200 index futures declined 53 points or 1 per cent to 5311 as the price of oil turned negative for the first time in history. In unprecedented conditions, sellers in a market facing a massive glut and storage issues were effectively paying buyers to take delivery of crude.

At settlement, US oil due to be delivered next month was down US$55.90 or 306 per cent at -US$37.63 a barrel. The price inversion reflects the desperation of buyers caught out by storage problems after demand collapsed in the face of the pandemic.

US stocks fell sharply as the disruption in crude markets underlined the economic damage caused by Covid-19. The S&P 500 shed 51 points or 1.79 per cent as the energy sector tumbled 3.3 per cent. The Dow fell 592 points or 2.44 per cent and the Nasdaq 89 points or 1.03 per cent.

The damage to stocks would have been heavier if declines had been larger in oil contracts expiring later this year. West Texas Intermediate crude for June delivery settled $4.60 or 18.3 per cent lower at US$20.03 a barrel. The July contract dropped around 11 per cent to US$26.18. The international benchmark, Brent crude for June delivery, settled $2.51 or 8.9 per cent in the red at US$25.57.

“The most simple explanation for negative oil prices is that midstream players are now paying buyers to take oil volumes away as the physical storage limit will be reached,” analyst Louise Dickson at Rystad Energy told MarketWatch. “And they are paying top dollar!”

Exxon Mobil fell 4.7 per cent, Chevron 4.1 per cent and planemaker Boeing 6.7 per cent. Just two stocks on the Dow edged higher: IBM, up 0.2 per cent and Cisco, up 0.1 per cent. Stay-at-home plays Amazon and Netflix climbed 0.8 per cent and 3.4 per cent, respectively.

Market sentiment was also dampened by a delay in releasing more funds for small businesses. A bill to top up a relief fund stalled in the Senate overnight. Lawmakers were expected to vote as soon as tonight.

The S&P/ASX 200 fell 134 points or 2.5 per cent yesterday to its lowest level in more than a week as oil began its extraordinary plunge. The energy sector slumped 4.6 per cent, the fall exaggerated by a slump in Caltex after a Canadian suitor abandoned a takeover bid. Reports emerged shortly after the close that airline Virgin Australia was likely to enter voluntary administration, crippled by huge debts and travel bans. News was expected this morning.

Resource stocks came under pressure overnight. BHP’s US-listed stock shed 3.12 per cent and its UK-listed stock 0.41 per cent. Rio Tinto edged up 0.42 per cent in the UK, but lost 2.6 per cent in the US. The spot price for iron ore landed in China rose 75 cents or 0.9 per cent to US$86.20 a dry ton.

Gold settled back above US$1,700 an ounce as havens attracted a bid. Gold for June delivery finished $12.40 or 0.7 per cent ahead at US$1,711.30 an ounce.

Nickel outperformed during a mixed night on the London Metal Exchange, climbing 3.9 per cent to its highest level in a month. Benchmark nickel finished at US$12,447.25 a tonne after Brazilian giant Vale cut its production target due to the virus. Copper dropped 0.7 per cent, aluminium 0.4 per cent and zinc 0.6 per cent. Tin and lead gained 0.9 per cent.

The dollar was steady overnight at 63.35 US cents.

The day ahead brings the minutes from this month’s Reserve Bank policy meeting at 11.30 am EST and a speech by Governor Philip Lowe at 3 pm. Tonight in the US brings earnings updates from Netflix, Snap, Texas Instruments, Travelers, Lockheed Martin and Coca-Cola.

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