U.S. Stocks Set To Open Lower As Crude Oil Gets Crushed

May Contract For WTI Oil Falls To Levels Last Seen In 1999

S&P 500 futures are losing about 2% in premarket trading as oil gets crushed and market attention shifts to the potential speed of the post-lockdown recovery.

May contract for WTI oil, whose settlement date is April 21, 2020, fell below $12 per barrel, a level not seen since 1999. The June contract is doing better but also showed material decline and is currently trading below the $23 level.

The major downside in oil will surely put pressure on oil-related stocks, including major oil producers like Exxon Mobil, Chevron, BP and Total or oil services firms like Schlumberger, Halliburton and Baker Hughes.

The problems on the oil price front will hurt the U.S. economy, both through direct impact on oil companies and indirect impact on everyone who provides its services to oil producers and their employees.

The Magnitude Of Economic Damage From Virus Containment Measures Remains Unclear

As per the recent economic outlook update from the International Monetary Fund, the U.S. Economy is expected to shrink by 5.9% in 2020. However, the actual results are uncertain, and a recent example from Spain highlights this uncertainty.

The IMF predicted that GDP of Spain will decline by 8.0% in 2020. Meanwhile, the Bank of Spain stated that GDP may decline between 6.8% and 12.0%, with a midpoint at -9.4%.

Both the range and the difference between the midpoint of Bank of Spain forecast and the IMF forecast highlight the enormous uncertainty that has to be dealt with in these unprecedented times.

It remains to be seen if this uncertainty will put more pressure on the market after the recent rally or if additional stimulus measures will help traders ignore the negative economic data.

U.S. Set To Approve Additional Aid For Small Businesses

The U.S. President Donald Trump signaled that additional aid for small firms that got hit by the coronavirus crisis may be approved this Monday. It is unclear how much money will be allocated, but any help is surely welcome as the lockdown puts huge pressure on small companies.

The size of the intervention is unlikely to move financial markets who got accumstomed to huge stimulus programs. Most likely, traders and investors will focus on oil price dynamics on Monday and then shift their attention to new economic data like Existing Home Sales which is set to be published on Tuesday.