The Death of the Department Store: ‘Very Few Are Likely to Survive’
Shuttered flagships. Empty malls. Canceled orders. Risks of bankruptcy. The coronavirus has hit the behemoths of the retail world.
American department stores, once all-powerful shopping meccas that anchored malls and Main Streets across the country, have been dealt blow after blow in the past decade. J.C. Penney and Sears were upended by hedge funds. Macy’s has been closing stores and cutting corporate staff. Barneys New York filed for bankruptcy last year.
But nothing compares to the shock the weakened industry has taken from the coronavirus pandemic. The sales of clothing and accessories fell by more than half in March, a trend that is expected to only get worse in April. The entire executive team at Lord & Taylor was let go this month. Nordstrom has canceled orders and put off paying its vendors. The Neiman Marcus Group, the most glittering of the American department store chains, is expected to declare bankruptcy in the coming days, the first major retailer felled during the current crisis.
It is not likely to be the last.
“The department stores, which have been failing slowly for a very long time, really don’t get over this,” said Mark A. Cohen, the director of retail studies at Columbia University’s Business School. “The genre is toast, and looking at the other side of this, there are very few who are likely to survive.”
At a time when retailers should be putting in orders for the all-important holiday shopping season, stores are furloughing tens of thousands of corporate and store employees, hoarding cash and desperately planning how to survive this crisis. The specter of mass default is being discussed not just behind closed doors but in analysts’ future models. Whether or not that happens, no one doubts that the upheaval caused by the pandemic will permanently alter both the retail landscape and the relationships of brands with the stores that sell them.
At the very least, there is expected to be an enormous reduction in the amount of stores in each chain, which once sprawled across the American continent like a pack of many-headed hydras.
Department store chains account for about 30 percent of the total mall square footage in the United States, with 10 percent of that coming from Sears and J.C. Penney, according to a January report from Green Street Advisors, a real estate research firm. Even before the pandemic, the firm expected about half of mall-based department stores to close in the next five years.
Even as they have worked to transform themselves for e-commerce with apps, websites and in-store exchanges, the outbreak has laid bare how dependent the department stores have remained on their physical outposts. Macy’s said on March 30 that after closing its stores for nearly two weeks, it had lost the majority of its sales.
The Commerce Department’s retail sales report for March, released last week, was disastrous. Overall retail sales numbers for this month are expected to be even worse, given that some stores were open for at least part of March.
Retailers have begun taking extreme measures to try to survive. Le Tote, a subscription clothing company that acquired Lord & Taylor last year from Hudson’s Bay, said in a memo on April 2 that the chain’s entire executive team, including the chief executive, would be let go immediately. It also suspended payments of goods to vendors for at least 90 days, citing “immense pressure on our liquidity position.”
Macy’s, which also owns Bloomingdale’s, extended payment for goods and services to 120 days from 60 days and, according to Reuters, has hired bankers from Lazard to explore new financing. Jeff Gennette, the chief executive, is forgoing any compensation for the duration of the crisis. The company was dropped from the S&P 500 last month based on its valuation.
J.C. Penney has hired advisers to explore restructuring options, according to a person familiar with the matter, and confirmed that it skipped an interest payment on its debt last week.
But none of them were in as immediate dire straits as Neiman Marcus, which has both an enormous debt burden — about $4.8 billion, thanks in part to a leveraged buyout in 2013 by the owners Ares Management and the Canada Pension Plan Investment Board — and a raft of expensive rents in the most high-profile shopping destinations, signed during boom times.
In late March, Neiman stopped accepting new merchandise and furloughed a large portion of its approximately 14,000 employees as the rumors of bankruptcy began to swirl. Its chief executive, Geoffroy van Raemdonck, announced that he was waiving his salary for April. The brand denied to vendors and its own employees at its sister brand Bergdorf Goodman that it was engaging advisers to explore a bankruptcy filing, but on April 14, S&P downgraded Neiman’s credit rating. Last week, the retailer did not make an interest payment that was due on April 15, angering bondholders and further fueling suspicions that a bankruptcy filing was imminent. A spokesperson for Neiman Marcus declined to comment.
Even Nordstrom, widely considered the healthiest department store, said this month that it could be facing a “distressed” situation if its physical locations closed to customers for “an extended period of time.” Erik and Pete Nordstrom, chief executive and chief brand officer, are both receiving no base salary for at least six months. The chain has stunned some vendors with last-minute cancellations via email in recent days.
Across chains, prices for new merchandise sold via e-commerce have already been slashed by 40 percent in some cases. Order cancellations for the pre-fall season — which would normally have started delivering next month — have been increasing. Some brands said shipments have even been turned away upon delivery to warehouses, and extensions of payment terms are cascading through vendors, who are then forced to negotiate with their own manufacturers, marketing agencies, fulfillment centers and landlords.
“I’ve had a showroom for over 30 years, and we have always used the word ‘partnership,’ when talking about our relationship with the department stores,” said Betsee Isenberg of the showroom 10Eleven, which represents numerous brands such as Vince and ATM. “Through 9/11, through 2008, we worked hand in hand with our retailers. This is the first time the onus has been on the brands — many of which are losing millions and millions of dollars because of the canceled orders. It is just not fair that it is survival of the fittest.” In a new report, McKinsey refers to the situation as “wholesale Darwinism.”
The resort season has been canceled entirely, and fall orders have been put on hold, raising questions about what inventory will be left if and when shops reopen and consumers return to stores.
“Nobody knows what Q4 will be like, but you have to start putting the orders in now,” Sucharita Kodali, a retail analyst at Forrester, said of the holiday season, normally the most lucrative time of the year for the chains. “Some people don’t even have the money to put in Q4 orders, and may have to cancel Q4 orders anyway, and it’s a mess. There’s never been this much uncertainty.”
Robert Burke, the eponymous founder of a luxury consultancy, said he expected brands to move further away from a wholesale business, focusing on direct-to-consumer and a model with department stores where they control their own space and inventory.
Shares of J.C. Penney, which has temporarily shut its more than 800 stores, closed at 23 cents on the dollar last Wednesday after the retailer said it did not make a $12 million interest payment due that day. Brooke Buchanan, a representative, said it was a “strategic decision” in order to take advantage of a 30-day grace period before it was considered in default.
Ms. Buchanan said J.C. Penney had “been engaged in discussions with its lenders since mid-2019 to evaluate options to strengthen its balance sheet, a process that has become even more important as our stores have also closed due to the pandemic.”
Cash flow for all department stores has dropped sharply. In a note on April 13, analysts at Cowen estimated four months of liquidity at Macy’s, six months at Kohl’s and seven months for J.C. Penney. Nordstrom, they predicted, could withstand store closings for 12 months.
“The nature of the mall is if you lose a big anchor like a Macy’s, you have co-tenancy issues and you have more pressure on the mall traffic, which was already a big issue,” said Oliver Chen, an analyst at Cowen. Co-tenancy clauses typically allow other tenants to demand rent reductions if certain key chains depart. Mr. Chen said that could accelerate the ongoing divide between top-tier malls and the second- or third-choice malls in certain areas.
According to a report this month from S&P Global Market Intelligence, department stores were more likely than any other consumer industry to default on their debt in the next year. It estimated the probability at 42 percent.
In its April 2 memo, the management of Le Tote and Lord & Taylor said only “key employees” were being retained to preserve the business. A representative for Lord & Taylor and Le Tote declined to comment or disclose the number of employees who were furloughed and laid off.
“It appears to be a virtual certainty that Lord & Taylor will liquidate its business in the near future, either in or out of bankruptcy,” said James Van Horn, a partner at Barnes & Thornburg and a specialist in retail bankruptcy. “They were already one of the most challenged department stores prior to the coronavirus pandemic, and when the majority of the management team is leaving, the vast majority of employees are laid off and a minority of employees furloughed, there does not seem to be any other strategy but to liquidate the inventory.”
Mr. Van Horn said he expected that other chains might strategically employ Chapter 11 reorganizations to legally shed stores, lightening their rent burden.
“It will likely be a domino that falls,” he said. “Whether it is first or 10th, we don’t know.”
The Infection That’s Silently Killing Coronavirus Patients
This is what I learned during 10 days of treating Covid pneumonia at Bellevue Hospital.By Richard Levitan
A pulse oximeter can provide early warning of the kinds of breathing problems associated with Covid-19 pneumonia.Credit...Giorgos Moutafis/Reuters
I have been practicing emergency medicine for 30 years. In 1994 I invented an imaging system for teaching intubation, the procedure of inserting breathing tubes. This led me to perform research into this procedure, and subsequently teach airway procedure courses to physicians worldwide for the last two decades.
So at the end of March, as a crush of Covid-19 patients began overwhelming hospitals in New York City, I volunteered to spend 10 days at Bellevue, helping at the hospital where I trained. Over those days, I realized that we are not detecting the deadly pneumonia the virus causes early enough and that we could be doing more to keep patients off ventilators — and alive.
On the long drive to New York from my home in New Hampshire, I called my friend Nick Caputo, an emergency physician in the Bronx, who was already in the thick of it. I wanted to know what I was facing, how to stay safe and about his insights into airway management with this disease. “Rich,” he said, “it’s like nothing I’ve ever seen before.”
He was right. Pneumonia caused by the coronavirus has had a stunning impact on the city’s hospital system. Normally an E.R. has a mix of patients with conditions ranging from the serious, such as heart attacks, strokes and traumatic injuries, to the nonlife-threatening, such as minor lacerations, intoxication, orthopedic injuries and migraine headaches.
During my recent time at Bellevue, though, almost all the E.R. patients had Covid pneumonia. Within the first hour of my first shift I inserted breathing tubes into two patients.
Even patients without respiratory complaints had Covid pneumonia. The patient stabbed in the shoulder, whom we X-rayed because we worried he had a collapsed lung, actually had Covid pneumonia. In patients on whom we did CT scans because they were injured in falls, we coincidentally found Covid pneumonia. Elderly patients who had passed out for unknown reasons and a number of diabetic patients were found to have it.
And here is what really surprised us: These patients did not report any sensation of breathing problems, even though their chest X-rays showed diffuse pneumonia and their oxygen was below normal. How could this be?
We are just beginning to recognize that Covid pneumonia initially causes a form of oxygen deprivation we call “silent hypoxia” — “silent” because of its insidious, hard-to-detect nature.
Pneumonia is an infection of the lungs in which the air sacs fill with fluid or pus. Normally, patients develop chest discomfort, pain with breathing and other breathing problems. But when Covid pneumonia first strikes, patients don’t feel short of breath, even as their oxygen levels fall. And by the time they do, they have alarmingly low oxygen levels and moderate-to-severe pneumonia (as seen on chest X-rays). Normal oxygen saturation for most persons at sea level is 94 percent to 100 percent; Covid pneumonia patients I saw had oxygen saturations as low as 50 percent.
To my amazement, most patients I saw said they had been sick for a week or so with fever, cough, upset stomach and fatigue, but they only became short of breath the day they came to the hospital. Their pneumonia had clearly been going on for days, but by the time they felt they had to go to the hospital, they were often already in critical condition.
In emergency departments we insert breathing tubes in critically ill patients for a variety of reasons. In my 30 years of practice, however, most patients requiring emergency intubation are in shock, have altered mental status or are grunting to breathe. Patients requiring intubation because of acute hypoxia are often unconscious or using every muscle they can to take a breath. They are in extreme duress. Covid pneumonia cases are very different.
A vast majority of Covid pneumonia patients I met had remarkably low oxygen saturations at triage — seemingly incompatible with life — but they were using their cellphones as we put them on monitors. Although breathing fast, they had relatively minimal apparent distress, despite dangerously low oxygen levels and terrible pneumonia on chest X-rays.
We are only just beginning to understand why this is so. The coronavirus attacks lung cells that make surfactant. This substance helps the air sacs in the lungs stay open between breaths and is critical to normal lung function. As the inflammation from Covid pneumonia starts, it causes the air sacs to collapse, and oxygen levels fall. Yet the lungs initially remain “compliant,” not yet stiff or heavy with fluid. This means patients can still expel carbon dioxide — and without a buildup of carbon dioxide, patients do not feel short of breath.
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Patients compensate for the low oxygen in their blood by breathing faster and deeper — and this happens without their realizing it. This silent hypoxia, and the patient’s physiological response to it, causes even more inflammation and more air sacs to collapse, and the pneumonia worsens until oxygen levels plummet. In effect, patients are injuring their own lungs by breathing harder and harder. Twenty percent of Covid pneumonia patients then go on to a second and deadlier phase of lung injury. Fluid builds up and the lungs become stiff, carbon dioxide rises, and patients develop acute respiratory failure.
By the time patients have noticeable trouble breathing and present to the hospital with dangerously low oxygen levels, many will ultimately require a ventilator.
Silent hypoxia progressing rapidly to respiratory failure explains cases of Covid-19 patients dying suddenly after not feeling short of breath. (It appears that most Covid-19 patients experience relatively mild symptoms and get over the illness in a week or two without treatment.)
A major reason this pandemic is straining our health system is the alarming severity of lung injury patients have when they arrive in emergency rooms. Covid-19 overwhelmingly kills through the lungs. And because so many patients are not going to the hospital until their pneumonia is already well advanced, many wind up on ventilators, causing shortages of the machines. And once on ventilators, many die.
Avoiding the use of a ventilator is a huge win for both patient and the health care system. The resources needed for patients on ventilators are staggering. Vented patients require multiple sedatives so that they don’t buck the vent or accidentally remove their breathing tubes; they need intravenous and arterial lines, IV medicines and IV pumps. In addition to a tube in the trachea, they have tubes in their stomach and bladder. Teams of people are required to move each patient, turning them on their stomach and then their back, twice a day to improve lung function.
There is a way we could identify more patients who have Covid pneumonia sooner and treat them more effectively — and it would not require waiting for a coronavirus test at a hospital or doctor’s office. It requires detecting silent hypoxia early through a common medical device that can be purchased without a prescription at most pharmacies: a pulse oximeter.
Pulse oximetry is no more complicated than using a thermometer. These small devices turn on with one button and are placed on a fingertip. In a few seconds, two numbers are displayed: oxygen saturation and pulse rate. Pulse oximeters are extremely reliable in detecting oxygenation problems and elevated heart rates.
Pulse oximeters helped save the lives of two emergency physicians I know, alerting them early on to the need for treatment. When they noticed their oxygen levels declining, both went to the hospital and recovered (though one waited longer and required more treatment). Detection of hypoxia, early treatment and close monitoring apparently also worked for Boris Johnson, the British prime minister.
Widespread pulse oximetry screening for Covid pneumonia — whether people check themselves on home devices or go to clinics or doctors’ offices — could provide an early warning system for the kinds of breathing problems associated with Covid pneumonia.
People using the devices at home would want to consult with their doctors to reduce the number of people who come to the E.R. unnecessarily because they misinterpret their device. There also may be some patients who have unrecognized chronic lung problems and have borderline or slightly low oxygen saturations unrelated to Covid-19.
All patients who have tested positive for the coronavirus should have pulse oximetry monitoring for two weeks, the period during which Covid pneumonia typically develops. All persons with cough, fatigue and fevers should also have pulse oximeter monitoring even if they have not had virus testing, or even if their swab test was negative, because those tests are only about 70 percent accurate. A vast majority of Americans who have been exposed to the virus don’t know it.
There are other things we can do as well to avoid immediately resorting to intubation and a ventilator. Patient positioning maneuvers (having patients lie on their stomach and sides) opens up the lower and posterior lungs most affected in Covid pneumonia. Oxygenation and positioning helped patients breathe easier and seemed to prevent progression of the disease in many cases. In a preliminary study by Dr. Caputo, this strategy helped keep three out of four patients with advanced Covid pneumonia from needing a ventilator in the first 24 hours.
To date, Covid-19 has killed more than 40,600 people nationwide — more than 10,000 in New York State alone. Oximeters are not 100 percent accurate, and they are not a panacea. There will be deaths and bad outcomes that are not preventable. We don’t fully understand why certain patients get so sick, or why some go on to develop multi-organ failure. Many elderly people, already weak with chronic illness, and those with underlying lung disease do very poorly with Covid pneumonia, despite aggressive treatment.
But we can do better. Right now, many emergency rooms are either being crushed by this one disease or waiting for it to hit. We must direct resources to identifying and treating the initial phase of Covid pneumonia earlier by screening for silent hypoxia.
It’s time to get ahead of this virus instead of chasing it.
Kering Q1 Sales Fall 15.4% as Gucci Takes Coronavirus Hit
The French luxury group had projected a 13 to 14 percent drop in first-quarter consolidated revenue.
PARIS — French luxury group Kering said sales took a larger-than-expected hit in the first quarter as the coronavirus outbreak curtailed travel and shuttered stores worldwide, strongly impacting revenues at its cash cow brand Gucci.
Group revenues in the three months to March 31 fell 15.4 percent to 3.20 billion euros, representing a decline of 16.4 percent in comparable terms, though Kering noted “encouraging signs” in mainland China in March as most of its stores there reopened.
In percentage terms, the decline was broadly in line with sector leader LVMH Moët Hennessy Louis Vuitton, which last week reported a 15 percent drop in first-quarter sales, but it was below the guidance Kering issued last month.
The group, which owns brands including Gucci, Saint Laurent and Boucheron, had warned that consolidated revenue for the first quarter would likely be down between 13 and 14 percent, or 15 percent in comparable terms, versus the same quarter last year.
Kering expects second-quarter revenues to be sharply impacted, and forecasts a decline in the recurring operating margin in the first half.
“The COVID-19 pandemic took a heavy toll on our operations in the first quarter,” François-Henri Pinault, chairman and chief executive officer of Kering, said in a statement on Tuesday.
“We are working hard on ensuring the continuity and readiness of all our businesses. Adapting our cost base and preserving our cash position are top priorities, implemented at all levels of the group. Our solid financial structure and our agility serve us well in this difficult period,” he said.
“My confidence in Kering’s future lies in the strength and values of our houses, which will all emerge from this period of uncertainty at the top of their game, as well as in our ability to blend long-term vision with near-term imperatives,” Pinault concluded.
Organic sales at Gucci fell 23.2 percent during the period, compared with a rise of 10.5 percent in the fourth quarter of 2019 and an increase of 20 percent during the same period a year ago. The brand accounted for more than 60 percent of Kering’s revenues, and 82 percent of its operating profit, last year.
Saint Laurent posted a 13.8 percent drop in organic sales, while other houses, a division that includes Balenciaga and Alexander McQueen, saw sales decrease by a relatively more modest 5.4 percent.
Bottega Veneta recorded an increase in sales of 8.5 percent, confirming its strong momentum as more of creative director Daniel Lee’s new designs land in stores.
As part of its effort to rein in costs, Kering will propose cutting its planned dividend by 30 percent at its annual general meeting, which will now be held on June 16 behind closed doors.
As reported, Pinault has decided to cut the fixed portion of his salary by 25 percent from April until the end of the year. He and Jean-François Palus, group managing director, have also decided to waive the variable portions of their annual remuneration for 2020.
The luxury market is expected to contract by 25 to 30 percent in the first quarter, according to management consulting firm Bain & Co., which also modeled three scenarios for the whole of 2020 — with the intermediate scenario suggesting a contraction of between 22 percent and 25 percent.
Exane BNP Paribas said that in light of the International Monetary Fund’s forecast of a 3 percent contraction in the global economy, it now expects the luxury market to shrink by 20 percent in 2020, versus a forecast of 4 percent growth at the beginning of the year.
However, it expects Kering to weather the storm better than most.
“Gucci is among the brands that should continue to benefit from the ongoing polarization in soft luxury,” analysts Melania Grippo and Guido Lucarelli said in a recent report.
“Furthermore, M&A could help lower the dependence on Gucci,” they added. “Kering could undertake an acquisition given its low leverage, and spend up to 20 billion euros in such a transaction.”
Hermès is due to publish quarterly sales figures on April 23, while Compagnie Financière Richemont reports annual results on May 15.
Swiss Watch Exports Down 21.9% in March, Steeper Drops Expected
A 43.2 percent decline in volumes represents the market situation better, said Federation of the Swiss Watch Industry.
PARIS — Offering a snapshot of the trajectory of the watches business in the coronavirus crisis era, Swiss watch exports fell by 21.9 percent in March and a further deterioration is expected in April, the Federation of the Swiss Watch Industry said Tuesday.
Watch exports totaled 1.4 billion Swiss francs, or $1.44 billion, with the federation noting that the marked decline, which was led by steep decreases in Hong Kong and the U.K., down 41.3 percent and 33.9 percent, respectively, was actually less severe than the drop in actual sales in some markets. In Italy, which was strongly affected by COVID-19 in March, the decline came to 57.6 percent.
Volumes of timepiece units exported, meanwhile, were down 43.1 percent, a figure that was more representative of the “real state of the watch market,” according to the federation.
Bucking the trend, the U.S. and China offered rare, and surprising, bright spots, up 20.9 percent to 226.7 million Swiss francs and up 10.5 percent to 155.9 million Swiss francs, respectively. The performance in the U.S. was buoyed by purchases of pricy watches, worth more than 3,000 Swiss francs, likely in anticipation of shipping difficulties, the federation added. The bounce back in China, after steep declines in February, was likely spurred by improving domestic consumption as the crisis eased there.
While dramatic, the decline in business in Hong Kong was likely less severe than the drop in sell-out there, according to the federation, which noted the re-export markets in the region are likely faring a bit better.
Reflecting trends already observed before the disruption from COVID-19 began weighing on exports, higher priced watches performed better than cheaper timepieces, with the highest category, priced over 3,000 Swiss francs down 12.9 percent in value, while those in the 200 to 500 Swiss franc range fell 54.1 percent.
“By price point, data has been consistent with the past year performance with the lower-end segment underperforming,” noted analysts with Bernstein.
The spread of COVID-19 has prompted the cancellation of traditional watch trade fairs in Switzerland – Watches and Wonders, formerly known as SIHH, and Baselworld, which had been scheduled to take place back-to-back in April and May. Baselworld has been hit with further tumult, with labels including Rolex, Chanel, Patek Philippe, Zenith, Hublot and Tag Heuer recently revealing they will not take part in next year’s edition.
Watches and Wonders, which is dominated by labels belonging to Compagnie Financière Richemont, including Cartier, Vacheron Constantin and Jaeger-LeCoultre, plans to open an online platform beginning April 25 as a virtual alternative to the fair, with a page for each brand and 10-minute streaming videos.
Vivendi buys stake in Lagardère ahead of activist showdown
Two French billionaires build investments in media group
Vivendi has entered the fray in a looming battle between French media group Lagardère and an activist hedge fund by buying a 10.6 per cent stake in the family-controlled company.
Billionaire Vincent Bolloré’s conglomerate disclosed the investment on Tuesday ahead of an expected clash at Lagardère’s annual meeting on May 5.
Amber Capital, which is Lagardère’s biggest shareholder with an 18 per cent stake, has submitted resolutions to replace most of the board. It has argued that poor governance had allowed heir and managing partner Arnaud Lagardère to destroy shareholder value for years with little consequences.
Another French billionaire, Marc Ladreit de Lacharrière, has also invested in Lagardère in recent weeks, and is thought to hold a roughly 3.5 per cent stake, according to people familiar with the matter.
Vivendi was tight-lipped about its intentions. But Mr Bolloré has a long record of corporate raids such as at video games maker Ubisoft and construction giant Bouygues, and took control of Vivendi gradually with an initially modest stake.
In this case, Mr Bolloré may take a softer approach since Lagardère’s incoming chairman, former French President Nicolas Sarkozy, is a longtime ally.
“This acquisition is a long-term financial investment reflecting Vivendi’s confidence in the future prospects of the French group, which enjoys international leadership positions in its businesses and which, like many others, is experiencing difficult times at the moment,” said Vivendi in a statement.
Amber Capital founder Joseph Oughourlian said the arrival of the billionaires to Lagardère was a risk to the group, especially Vivendi.
“If Lagardère shareholders don’t want to be legged over by a competitor they should vote for our candidates,” he said. “Otherwise the dismantling of the group which started 10 years ago will reach a climax with a total dismemberment in the months or years to come.”
Vivendi owns a small French language publishing group called Editis, and Lagardère owns Hachette, the world’s third-biggest book publisher behind best-selling authors such as Donna Tartt and Michael Connelly.
Lagardère declined to comment.
Trump faces opposition over proposal to help energy groups
Any aid to the sector likely to face pushback from Democrats
Donald Trump has told his energy and economic officials to craft a plan to help energy companies that have been hit by the collapse in oil prices, in a move that is expected to face resistance from Democrats in Congress.
“We will never let the great US oil & gas industry down,” Mr Trump tweeted on Tuesday morning. “I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!”
The White House is struggling to respond to the fall in prices, which has continued despite a recent deal between Saudi Arabia and Russia to cut supply by almost 10m barrels a day, that Mr Trump helped broker.
The US president was originally concerned that falling prices would hurt shale producers — which are important in swing states such as Pennsylvania — but the further plunge has sparked broader concern about the entire US energy industry.
Lockdowns and travel bans implemented by authorities to prevent the spread of the coronavirus has seen global demand for crude plummet by as much as a third this month from pre-crisis levels.
The Trump administration hammered out a deal with Congress earlier this month to pass a $2.2tn stimulus package and has just reached an agreement with lawmakers to provide more help for small businesses.
But there is no consensus on Capitol Hill about helping energy companies, which have long been vilified by environmental groups that are aligned more closely with Democrats as environmentally unfriendly “Big Oil”.
“If Trump asks for an oil bailout, remind him of the favours he’s already done for them, including his ongoing effort to undo the safeguards put in place after the Deepwater Horizon disaster,” said Chris Van Hollen, a Democratic senator from Maryland, referring to the explosion of a BP oil drilling rig in the Gulf of Mexico in 2010.
The Treasury did not comment on the president’s tweet. Oil and gas companies are already potentially eligible for federal aid under a section of the $2.2tn stimulus package that directs $500bn in aid to distressed parts of the economy. The bulk of the money is reserved for a series of programmes run by the Federal Reserve which would have the US central bank extend loans to troubled companies and buy their debt under certain conditions.
Bharat Ramamurti, a former aide to Democratic senator Elizabeth Warren and member of the congressional oversight panel for the $500bn fund, warned that any help for the energy sector would be closely watched.
“If this plan ends up using some of the $500bn Congress allocated to the Treasury Department in the Care Act, the Congressional Oversight Commission . . . should scrutinise the plan very carefully,” he tweeted.
Some Republicans have urged Mr Trump to pressure Riyadh to further cut supply. Kevin Cramer, a North Dakota senator, has suggested that the administration block Saudi tankers from bringing oil to the US.
The American Exploration & Production Council, which represents 26 of the largest independent oil and natural gas companies, urged the administration to put pressure on China to buy more US energy in line with the trade agreement that the US and China concluded earlier this year.
“China has only purchased a de minimis amount of US crude in the first months of 2020, while it has increased purchases of crude oil from Saudi Arabia and Russia,” said Anne Bradbury, the head of the trade group, which represents companies such as Chesapeake Energy and Devon Energy. “Rather than increasing imports from countries like Russia and Saudi Arabia, the Chinese government must take the necessary steps to remain in good standing with the US as a trusted trading partner.”
Democrats have already warned that the stimulus money should not be used for the oil sector. Two dozen Democrats last week signed a letter to the administration led by Ed Markey, a Massachusetts senator, and Nanette Diaz Barragán, a California lawmaker, which criticised energy companies for “taking every opportunity to push for a bailout that avoids responsibility for record levels of debt and financial turmoil that are of their own making”.
Alexandria Ocasio-Cortez, a progressive New York lawmaker, on Monday said the fall in oil prices signalled it was time to implement the “Green New Deal”. In a tweet about negative oil prices, that was later deleted, she said: “You absolutely love to see it.”
She added: “This along with record-low interest rates means it’s the right time for a worker-led, mass investment in green infrastructure to save our planet.”
Republicans attacked her for not caring about millions of people potentially losing their jobs. Steve Scalise, the House Republican whip, said Ms Ocasio-Cortez had deleted the tweet because Democrats were “willing to sacrifice people’s jobs and livelihoods for their radical socialist agenda”.
Kelly Armstrong, a GOP lawmaker from North Dakota, which relies heavily on energy companies, said people’s jobs were “evaporating”.
“Lives are being ruined in real time. North Dakota companies that have taken decades to build have been destroyed in hours. Any public official that loves to see this does not deserve to hold office,” Ms Armstrong said.
Oil lobbyists have been pushing for their sector not to be excluded from accessing liquidity through the federal legislation. The American Petroleum Institute, which represents big US oil companies, said “access to liquidity from lenders is vitally important to all industries impacted by this crisis”.
NIH recommends against anti-malaria drug/antibiotic combination for coronavirus - press
- Pres Trump had promoted the combination treatment
- The guidelines for treatment being developed by NIH consider two categories of therapies used by healthcare providers for COVID-19: antivirals and host modifiers, and immune based therapies
Disclosed moved 5% of WTI holdings into August contract - filing
- Commencing on April 21, 2020, because of extraordinary market conditions in the crude oil markets, including super contango, USO has invested in other permitted investments, as described below and in its prospectus. In particular, on April 21, 2020, USO invested in approximately 40% of its portfolio in crude oil futures contracts on the NYMEX and ICE Futures in the June contract, approximately 55% of its portfolio in crude oil futures contracts on the NYMEX and ICE Futures in the July contract and approximately 5% of its portfolio in crude oil futures contracts on the NYMEX and ICE Futures in the August contract, except when the front month contract is within two weeks of expiration, in which case the futures contracts held by USO will be rolled into the July contract, August contract and September contract. In addition, commencing on April 22, 2020, USO in response to ongoing extraordinary market conditions in the crude oil markets, including super contango, may invest in the above described crude oil futures contracts on the NYMEX and ICE Futures in any month available or in varying percentages or invest in any other of the permitted investments described below and in its prospectus, without further disclosure. USO intends to attempt to continue tracking USO’s benchmark as closely as possible, however significant tracking deviations may occur above and beyond the differences described herein. USO’s portfolio holdings as of the end of the prior business day are posted each day on the website: www.uscfinvestments.com/uso.
- As stated in the prospectus for USO, USO seeks to achieve its investment objective by investing primarily in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels that are traded on the NYMEX, ICE Futures Europe and ICE Futures U.S. (together, “ICE Futures”) or other U.S. and foreign exchanges (collectively, “Oil Futures Contracts”) and to a lesser extent, in order to comply with regulatory requirements or in view of market conditions, other oil-related investments such as cash-settled options on Oil Futures Contracts, forward contracts for oil, cleared swap contracts and non-exchange traded (“over-the-counter” or “OTC”) transactions that are based on the price of oil, other petroleum-based fuels, Oil Futures Contracts and indices based on the foregoing (collectively, “Other Oil Related Investments”). Market conditions that USCF currently anticipates could cause USO to invest in Other Oil-Related Investments include those allowing USO to obtain greater liquidity or to execute transactions with more favorable pricing. (For convenience and unless otherwise specified, Oil Futures Contracts and Other Oil-Related Investments collectively are referred to as “Oil Interests” in the prospectus.)
- As stated in the prospectus for USO, USO seeks to achieve its investment objective by investing primarily in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels that are traded on the NYMEX, ICE Futures Europe and ICE Futures U.S. (together, “ICE Futures”) or other U.S. and foreign exchanges (collectively, “Oil Futures Contracts”) and to a lesser extent, in order to comply with regulatory requirements or in view of market conditions, other oil-related investments such as cash-settled options on Oil Futures Contracts, forward contracts for oil, cleared swap contracts and non-exchange traded (“over-the-counter” or “OTC”) transactions that are based on the price of oil, other petroleum-based fuels, Oil Futures Contracts and indices based on the foregoing (collectively, “Other Oil Related Investments”). Market conditions that USCF currently anticipates could cause USO to invest in Other Oil-Related Investments include those allowing USO to obtain greater liquidity or to execute transactions with more favorable pricing. (For convenience and unless otherwise specified, Oil Futures Contracts and Other Oil-Related Investments collectively are referred to as “Oil Interests” in the prospectus.)