In New York, crude oil prices plummeted to $22.78 (West Texas Intermediate) and $28.12 (Brent Crude), the lowest prices seen since 2002 for WTI, as world commodity, debt equity markets reeled from the expected economic impact of coronavirus safety measures. Natural gas prices closed at $1.68, while the Dow Jones Industrial Average sank 6.30 percent to 19,898.92. The April US ethanol contract at the Chicago Board of trade closed at $0.96. Brent Crude had dipped more than these levels in the 2015-16 oil slide.
Oil prices are being hit by supply and demand shocks. On the demand side, coronavirus impact on the economy is hitting consumers and business not only with constraints on pocketbooks but constraints on mobility. Meanwhile, Russia and Saudi Arabia have opened up the spigots and are sloshing out the oil in fantastic volumes, with no let up yet in sight.
Bob McNally, president of Rapidan Energy Group, who graced the ABLC stage with a warning in 2018 that the world’s oil markets would enter a semi-permanent state of extreme volatility, told the Wall Street Journal that “We’re going down to levels where any company lifting a barrel of oil from the crust of the earth will destroy value because there’ll be nowhere to store it or burn it.” Conventional storage of oil is almost full – even tankers are being utilized as storage devices to take up the oil while it’s cheap, for re-sale when prices rebound. The US has been mulling plans to buy up to 77 million barrels of oil for the US Strategic Petroleum Reserve, but in all that represents less than a day’s output of the world’s oil producers.
McNally predicted that oil prices could fall into the single digits.
Bad news from Goldman on potential US and global impacts to health, markets
Meanwhile, Goldman Sachs weighed in at its latest investor call with a series of predictions and reflections on the coronavirus itself. Our friends at PFL Petroleum provided the following notes from the call:
- Around 50% of Americans will contract the virus (150 million people) as it’s very communicable. This is on par with the common cold (Rhinovirus) of which there are about 200 strains and which the majority of Americans will get 2-4 times per year.
- 70% of Germany will contract it (58 million people). This is the next most relevant industrial economy to be affected.
- Peak virus is expected over the next eight weeks, declining thereafter.
- The virus appears to be concentrated in a band between 30-50 degrees north latitude, meaning that like the common cold and flu, it prefers cold weather. The coming summer in the northern hemisphere should help. This is to say that the virus is likely seasonal.
- Of those impacted 80% will be early-stage, 15% mid-stage and 5% critical stage. Early stage symptoms are like the common cold and mid-stage symptoms are like the flu, these are stay at home for two weeks and rest remedies. 5% will be critical and highly weighted towards the elderly and immunocompromised.
- Mortality rate of 2%. This means up to 3 million people may die of coronavirus. ( 150 times .02) In the US about 3 million people a year die mostly to old age and disease, so these two categories are highly correlated. So there will be significant overlap. So it does not mean there will be 3 million new deaths from coronavirus. It will probably mean elderly and those with compromised immune systems dying sooner due to respiratory issues. This may put huge stress on the health care system.
- There is a debate how to address the virus pre-vaccine. The US is heading towards quarantine (like Canada). The UK is tending towards allowing it to spread so that the population can develop a natural immunity. Quarantine is likely to be ineffective and result in significant economic damage but will slow the rate of transmission giving the healthcare system more time to deal with the case load.
- China’s economy has been largely impacted, it has affected raw materials and the global supply chain. It may take up to six months to recover.
- Global GDP Growth rate will be the lowest in 30 years at around 2%.
- S&P 500 will see a negative growth rate of minus (15) to (20) for 2020 overall.
- There will be economic damage from the virus, but the real damage is driven mostly by market psychology. Viruses have been with us forever. Stock markets should fully recover in the second half of the year.
- In the past week there has been a conflating of the impact of the virus with the developing oil price war between KSA and Russia. While reduced energy prices are generally good for industrial economies, the US is now a large energy exporter, so there has been a negative impact on the valuation of the domestic energy sector. This will continue for some time as the Russians are attempting to economically squeeze the American shale producers and the Saudi’s are caught in the middle and do not want to further cede market share to Russia or the USA.
- Technically the market generally has been looking for a reason to reset after the longest bull market in history.
- There is no systemic risk. No one is even talking about that. Governments are intervening in the markets to stabilize them, and the private banking sector is very well capitalized.
- It feels more like 9/11 than 2008.
Ginkgo commits $25M in free access to platform for anti-coronavirus R&D efforts
Good news from our friends at Ginkgo. The company committed $25M of free access to its platform for partner COVID-19 projects. Ginkgo said
We’re inspired and heartened by the tremendous public health response to COVID-19, and recognize that a similar scale of effort is needed by the biotech community to find long-term solutions to this crisis. We’ve built our platform to enable partners across a wide range of applications to rapidly scale their R&D efforts, and we want to apply this technology today to the fight against the pandemic. To support the people building the treatments that will stop COVID-19
Former FDA commissioner Scott Gottlieb said today: “We must get a drug and eventually vaccine. We can have treatments, antibody prophylaxis, point of care diagnostics for early detection by fall. That must be [our] focus. #COVID19 doesn’t go away. [The] [i]initial wave will run course into summer but it’ll be back until our technology stops it.”
Ginkgo is now offering:
- $25M of no-cost foundry work towards projects that can use Ginkgo’s platform to accelerate development of point of care diagnostics, vaccines, or therapeutics. See below for details on how our technologies might be able to support these efforts.
- Connection to sources of funding from private and public sources. We are coordinating with people like Sam Altman and others on private funding efforts. If you are interested in funding COVID-19 work, we can connect you to vetted technical teams.
- Rapid sharing of R&D information as it is learned among the community of academics and companies working on solutions.
If you are currently a company or academic lab that is developing a diagnostic, drug, or vaccine and are interested in leveraging Ginkgo’s infrastructure at no cost please email Ginkgo team at [email protected]
Ginkgo has invested ~$400M over the last 5 years to build a 100,000 sqft automated facility that is used today to support partners like Roche and Bayer with a broad range of infrastructure for biotechnology R&D. More eon the potential for diagnostics, therapeutics, vaccine development and research tools, here.