Oil Prices Are Rallying and 5 Other Things to Watch Today - Barron's

An aerial view shows oil tankers anchored near the ports of Long Beach and Los Angeles amid the coronavirus pandemic on April 28, 2020. (Photo by Mario Tama/Getty Images)

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Stocks have taken investors on a wild ride—but it’s nothing compared to oil.

Behold the volatility! Oil prices are set for a fifth straight day of gains Tuesday morning. And not just any gains. U.S. crude prices have jumped 10%, which seems like a lot. But it all depends on what it’s compared to. Before Covid-19, and the Russian-Saudi price war, oil prices would move about 2% a day. Over the past month, prices have moved an average of 32%, up or down, each day. You can call that progress.

Crude has gained 80% over its five-day winning streak. But then it gets weird because oil prices are up negative 150% since April 20 lows, a statistic that doesn’t make a whole lot of sense. Crude oil futures traded for less than zero in April, when traders couldn’t give oil away. Calculating growth rates off negative numbers yields, well, confusing results.

With oil rallying, energy stocks are up too. Stock in Texas-based Apache (ticker: APA), is up 23% over the past five days, including Tuesday’s premarket move. Oil refiner Phillips 66 (PSX) stock is up 19% over the same span. Energy services provider Halliburton (HAL) shares are up 18%. Those three stocks, however, remain down about an average of 40% in 2020.

Investors could call it a new bull market. But it certainly doesn’t feel that way.

—Al Root

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Rising Estimates for Covid-19’s Toll in the U.S.

The number of daily deaths in the U.S. could almost double to 3,000 by June 1, with the number of daily new Covid-19 cases rising eight-fold to 200,000, a report by the Centers for Disease Control and Prevention projects, the New York Times and Washington Post reported. 

• The White House said that the new projections had not gone through the interagency vetting process. 
• Still, President Donald Trump said Sunday that 100,000 Americans could die from coronavirus, far more than he had forecast last month. The increase came as a number of states have already relaxed lockdown orders or are close to doing so.

What’s Next: Major states like Texas and Florida have already begun partial reopenings and California looks set to follow. Gov. Gavin Newsom said Monday that some retail stores would be allowed to open with specific modifications, like curb-side pickup, starting on Friday.

—Ben Walsh

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Investors Are Worried About Disney

You can’t run theme parks, movie theaters or make films during a pandemic. That new reality is weighing on Walt Disney’s (DIS) stock ahead of its quarterly earnings release today after the market closes.

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German High Court Throws Doubt on ECB’s QE

The European Central Bank’s main quantitative easing program failed the legal requirement to be “proportionate” to its goals, the German Federal Constitutional Court has ruled in a shock decision. The judgment has no legal bearing on the ECB, but it instructs the German government, and most importantly the Bundesbank, to stop cooperating with it.

• The Karlruhe court says QE however does not constitute “monetary financing” of governments, which is prohibited by the monetary union’s founding treaty.

• It explicitly states that the current, separate coronavirus-related €750 billion ($813 billion) bond-buying program is not concerned by the ruling.

• The court also instructs the Bundesbank to require the ECB to provide an assessment of the “proportionality” of the program launched in 2015–resumed last year after an interruption, and through which the ECB has already acquired €2.2 trillion of government bonds

What’s Next: The ruling could make it politically difficult for the ECB to increase its pandemic-specific program, expected to run out at the end of October at the current pace. And it will reinforce the long-standing opposition in Germany to the loose monetary policies pursued by the central bank since 2012.

—Pierre Briancon

• Disney shares are down 29% year to date, well below the S&P 500’s 12% drop over the same period.

• While the company’s push into streaming is helping it weather lockdowns, viewers and advertisers have fled ESPN since there are no sports to show and cord-cutting hurts the company’s cable channels.

What’s Next: MoffettNathanson’s Michael Nathanson has long been bullish on the company and he thinks Disney’s theme parks could open up again by the start of July. But even that, he points out, won’t be a panacea. He’s modeling for a “new normal” once the gates are open again.

—Ben Walsh

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J. Crew Won’t Be the Last Coronavirus Retailer Bankruptcy

J. Crew’s parent company filed for bankruptcy and has secured a $400 million loan to help it continue operating. 

• The clothing company has struggled under a massive debt load and an inability to adapt to changing consumer preferences. 

• The retail sector’s default rate could spike to 19% by the end of 2020, Fitch Ratings says. 

What’s Next: Big retailers like Neiman Marcus, J.C. Penney, the parent company of Men’s Wearhouse, and Ann Taylor’s owner have been flagged as risky or downgraded by one of the ratings agencies. But just because a company defaults doesn’t mean it’ll file for bankruptcy.

—Ben Walsh

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Ready to Take a Cruise Vacation

Reservations are open. Carnival (CCL), the world’s largest cruise operator, plans to resume some North American sailings starting Aug. 1 after being sidelined amid the coronavirus pandemic.

• The Miami-based cruise operator, which oversees nine brands and more than 100 ships, will put eight ships into service from three ports: Miami, Port Canaveral, Fla., and Galveston, Texas. Departures from other North American home ports and Australia are canceled through Aug. 31.

• Carnival and its two largest U.S. peers– Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH)–suspended operations in mid-March following lockdown restrictions. Many ports turned away ships, forcing them to linger at sea and trapping sick passengers.

  Royal Caribbean and Norwegian have yet to announce plans to resume operations.

What’s Next: Princess, a Carnival unit, has said it would check the temperatures of crew and passengers prior to voyages, along with heightened cleaning and sanitizing its ships. Expect deals to lure travelers. On its website, a 5-day cruise on the Carnival Sensation departing Miami to the Eastern Caribbean on Aug. 1 shows prices starting at $189 per person, for a trip total of about $679 including taxes for two people.

—Mary Romano

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