By Eiman Dambell
As another week begins, the situation surrounding the Coronavirus continues to create fear and tension on streets around the globe. However that wasn’t the main story line this Monday. Oil prices fell by over 20% on Monday as markets opened to the news that last week’s OPEC meeting brought nothing but more uncertainty into energy markets.
OPEC Plus Tensions
The cartel, which comprises of the world’s top Oil producers, the likes of Saudi Arabia, Iran and Iraq met last week in Vienna. The meeting included the allies of OPEC who are the top Oil producers not in the cartel, mainly Russia. The agenda of the talks centered around the potential for cutting Oil production starting off in April, however reaching an agreement on the number of cuts has been the main stumbling block. Russia, who had been the antagonist of the talks, failed to agree with the terms, which led to Saudi Arabia taking matters into their own hands.
The Saudi’s, which have seen the share price for Aramco fall for the first time below the IPO price, announced they will not only be slashing and offering discounted prices, but also increasing supply. The move which caught the markets by surprise saw Crude Oil fall to a 4 year low, as the price per barrel hit $27.25. A fall which meant that the price of a KFC family bucket cost more than a barrel of Oil. So what now?
Moves in the Markets
After the fall, which can be seen on the above chart, the markets seem to be finding the support price,which many hope will hold. The only issue to this would come if a full on price war ensues as Russia looks to respond in a similar manner, to help the potential of a price rise. Which it has been clear in it’s position to achieve.
With the Oil markets in crisis, several indices which have exposure to Oil through stocks,the likes BP, Shell and BHP Billiton all suffered huge losses as a result. The FTSE fell by close to 9%, as it also reached a 4 year low. With the AUS 200 seeing all of the growth experienced from 2019, all wiped out.
As we have seen these markets decline, Gold, the Japanese Yen and Swiss Franc have all gained. As the worlds safe haven markets, investors have leaned to these in these times of crisis to help sure up their portfolios. In particular, Gold on Sunday night, early Monday went over $1,700. A level which it hasn’t reached since 2012, when the markets were finding their way out of the mortgage crisis, which started within the US housing sector.
With all this said, and the strong US employment numbers which were released on Friday during the Non-Farm Payrolls announcement,the cut in interest rate. Panic seems to be still rife, and the question here is what will need to be done to see normality. Not only in markets but within general society. So far the Coronavirus, seems as though it may continue to head on this war path. However will it eventually be stopped?