The oil market’s subzero moment“Crude costs money again” is a strange headline for strange times. The price of a barrel of oil for delivery in May dropped below zero yesterday: West Texas Intermediate crude, the U.S. benchmark, closed at around -$38. It bounced back above zero, briefly, in early trading today, before falling back into negative territory. Market watchers are trying to make sense of it all.
Technical factors explain some of the decline. The soon-to-expire May contract went negative on thin volumes, while the more heavily traded June contract has remained above zero. In essence, traders don’t want to be stuck taking delivery of any oil now — storage is nearly full and demand is nonexistent — but they think that production cuts and a gradual reopening of the economy will make oil worth something in the future.
Could it happen again? Analysts at ING think so: “It is likely that storage this time next month will be even more of an issue, given the surplus environment, and so in the absence of a meaningful demand recovery, negative prices could return for June.”
Small businesses play loan rouletteThe federal government’s small-business rescue fund, the Payroll Protection Program, is out of money. When it was up and running, getting a loan from a designated first-come-first-served program was a matter of luck and connections.
• That has led businesses to sue banks like JPMorgan Chase and Bank of America, accusing them of favoring bigger customers.
Much of the outrage is directed at big restaurant and hotel chains, which were allowed to request funds, depriving true mom-and-pop businesses of loan money. And it doesn’t help that a majority of successful applicants haven’t received their money, according to a new survey.
Congress is poised to replenish the fund with $300 billion, and could have a bill to vote on as soon as this afternoon. But the banking industry says this won’t be enough: Lenders expect the reopened program to burn through $50 billion per day.
U.S. states prepare to reopen their economiesThe first batch of states have laid out their plans to lift lockdowns, and all eyes are on them to see if they’re moving too early.
South Carolina will let some retailers open today, Georgia will permit gyms and hair salons to do so on Friday, and Tennessee won’t renew a lockdown order set to expire on April 30. All three states said they believed that infections had leveled off enough to let them reopen their economies.
The Deal Professor: The big get biggerSteven Davidoff Solomon, a.k.a. “The Deal Professor,” is the faculty director at the Berkeley Center for Law, Business and the Economy
If past crises are any guide, the big technology companies are about to sidestep antitrust laws and get even bigger.
Consider last week’s decision by British regulators to allow Amazon’s investment in the London-based food delivery start-up Deliveroo. Amazon said last May that it was joining a $575 million fund-raising round, valuing Deliveroo at perhaps as much as $4 billion. Britain’s Competition and Markets Authority halted the deal because it thought it might be bad for competition.
That was before the pandemic.
Deliveroo argued that, without Amazon’s money, it would have to shut down. The British antitrust authority backed down, saying that if Deliveroo went bust, it “could mean that some customers are cut off from online food delivery altogether, with others facing higher prices or a reduction in service quality.”
Expect this to be repeated elsewhere. In the U.S., big companies will take advantage of the so-called failing firm exemption to antitrust law. This doctrine, which dates from a 1930 Supreme Court case, allows otherwise anticompetitive deals to succeed when the target would probably fail without the deal and there is no other viable investment. American Airlines used it when buying TWA.
Consolidation is natural during troubled times. Recall how the biggest U.S. banks gobbled up failing competitors during the 2008 financial crisis.
And with Washington consumed with saving the economy, don’t expect the pre-pandemic debates about breaking up tech companies or updating antitrust laws to get very far.
Richard Branson says he’s not as rich as he appearsIn pleading for help for his Virgin Atlantic airline, Mr. Branson argued that his wealth wasn’t as huge as people think — a reminder that billionaires may have wealth, but not necessarily cash.
Mr. Branson offered to borrow against his private island in the British Virgin Islands to help raise cash for Virgin Atlantic, he wrote in a blog post yesterday pleading for financial support from the British government.
• Another Virgin Group holding, Virgin Australia, filed for administration this morning after being denied a bailout.
He also argued that he couldn’t tap his personal fortune — estimated earlier this year at about $4.4 billion — because his net worth was largely tied up in holdings of the Virgin Group, rather than sitting in a bank account. It’s a reminder that the riches of many billionaires are tied to stock and investments.
The speed readDeals
• No deal worth more than $1 billion was announced last week, for the first time in 15 years. (Reuters)
• KKR reportedly plans to rebrand a struggling credit fund as a vehicle for finding coronavirus-era bargains. (Bloomberg)
Politics and policy
• President Trump said that he planned to temporarily suspend immigration to the U.S., calling it an effort to protect American jobs. (NYT)
• The British government’s rescue fund for start-ups requires a private co-investment and charges 8 percent interest. (The Register)
• Zoom’s security woes were well known to business partners like Dropbox. (NYT)
• Uber is starting two package delivery services, as its ride-hailing business falters. (The Verge)
Best of the rest
• Many boards are cutting executives’ salary but increasing their stock awards. (WSJ)