US stocks dropped sharply to start the week on Monday as investors are focused on coronavirus news along with plunging crude prices. The Dow Jones Industrial Average lost 500 points at the opening bell on Wall Street.
The S&P 500 index of America’s top-500 corporations slid 1.6 percent, while the tech-heavy Nasdaq Composite was down just under one percent during early trading.
Stocks are headed lower as the price of US crude benchmark West Texas Intermediate (WTI) crashed over 137 percent with the price going negative for the first time ever. Oil is selling off as the May crude contract is set to expire, and suppliers are running out of places to store it.
Despite the historic OPEC+ deal to cut global crude production by almost 10 percent, concerns are growing that oil storage facilities are still at risk of overflowing as the worldwide coronavirus lockdown has crippled demand. Investors are particularly worried about storage reaching capacity in Cushing, Oklahoma, a major US hub. The remaining 21 million barrels of storage at Cushing will likely be filled up in May, causing “panic” in the oil markets, Bjornar Tonhaugen, head of oil markets at Rystad Energy, told CNN.
“The moves in the oil market are really just unbelievable now that we are literally running out of storage space,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, said in a note seen by CNBC. “I do believe that these types of moves is what bottoms are made of and in May and June when things start to reopen again it will go a long way in helping along with the production cuts.”
READ MORE: Oil market will not start to see recovery before June despite historic production cuts
The downturn comes after US markets gained more than two percent last week due to reports that patients with severe virus symptoms were quickly recovering after using remdesivir, a Gilead Sciences drug.
Economists say the current health crisis is going to leave a mark on the global economy in the years to come. According to Joseph Amato, president and CIO of Equities at investment firm Neuberger Berman, the expectation is a deep recession in the first half of 2020, followed by a recovery later in the year “that still leaves US GDP down six percent, Europe’s down eight percent, Japan’s down three percent and China’s up just two percent.”
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