During the last months, the world economy has been severely punished due to the advance of the Coronavirus. Generating the interruption of normal activities in countries such as China or South Korea. However, it is not until today that we can start talking about a generalized economic crisis caused by the disease. Manifest not only in the fall of the bags this black Monday, but in the collapse of oil prices.
The disagreement between Saudis and Russians
To understand what happens in the international oil market, we must understand the situation in which the world economy is due to the Coronavirus. And, the advance of the virus has forced several sectors of the companies most affected by the disease, to reduce the pace of their activities, when not to interrupt them completely.
Therefore, it is understood that there is a noticeable decrease in oil demand worldwide. Since, by decreasing the consumption of electricity by companies that are closed by the Coronavirus. The volume of oil needed to meet the energy needs of the population also falls.
Thus, the scenario was set for a sharp reduction in the price of a barrel of oil, which Saudi Arabia, along with OPEC countries wanted to stop. Trying to convince Russia, the other global energy giant, to reduce oil production by at least 1.5 million barrels per day, to protect the price of crude.
However, Russia has preferred to reject the Saudi plan, protecting its share of the global oil market. Especially at a time when there was already a voluntary reduction in production to stop the fall caused some time ago by the entry into the shale oil market.
This Russian decision fell very badly in the circles of Saudi power. Announcing immediately the increase in the production of crude oil from the Arab kingdom to 10 million barrels per day. Offering, in addition, significant discounts on the price of oil traded through the Saudi state oil company, Aramco.
All this has led to the oil market reacting by pulling prices down by more than 30% this Monday. Preparing for a substantial increase in the supply of crude oil, at a time when demand for it is also reduced thanks to the Coronavirus. Thus creating an excess of oil in the world market, and lowering its price.
The fall of the bags
However, the economic disasters of this Monday have not ended with the historical fall in the price of oil. The largest that has been remembered in this market since the Gulf War of 1991. But the harmful effects of the coronavirus have expanded throughout the international financial market, affecting the world’s main exchanges.
And, if so far the markets had remained optimistic about the advance of the Coronavirus. The price war in the oil market initiated by Saudi Arabia and Russia has aroused the worst fears in investors. Those who have seen the worst consequences of the current health crisis.
All of which, combined with the paralysis of important sectors of the world economy due to the disease. It led to the worst decline in the global financial market since the crisis of 2008. Having to interrupt the negotiations on the New York Stock Exchange for 15 minutes, to prevent the decline from continuing for longer.
Thus, the figures left behind on Black Monday are dramatic. With a fall of 7.79% in the Dow Jones index, 7.6% in the S&P 500, and 6.83% in the Nasdaq 100. For its part, outside the United States, the Saudi stock market suffered a fall in the 9.6% while Aramco shares fell 10%. And in Europe the figures of the fall are around 8% in the main bags of the old continent.
This poses a bleak picture for the world economy in the short term. Well, while the coronavirus continues its progress, so do the economic damage that affects the financial markets. Even leading the Federal Reserve of the United States to inject liquidity into the market, to strengthen their confidence.
In the middle of one of the worst economic situations that are remembered in a long time. Which constitutes our Data of the Day here in CryptoTendencia.