Oil price crash sends shockwaves through financial markets
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Stocks and US government bond yields tumbled after oil prices crashed by almost a third, as the prospect of a crude price war hit global markets already reeling from the coronavirus outbreak.
The price of crude oil has plunged by more than 20% after Saudi Arabia, the world’s top oil exporter, said it would step up production from next month, flooding global markets and most likely depressing petrol and diesel prices.
Brent crude futures slid 30% to $31.02 a barrel in chaotic trade on Monday morning, before recovering slightly to $36.06, a drop of 20% on Friday night’s close. It was the worst one-day fall for Brent since the start of the first Gulf war in 1991. US crude fell 27% to $30.
The shock decision by state oil company Aramco over the weekend came in response to Russia’s refusal to join an Opec plan to cut supplies. Aramco will boost its crude output significantly above 10m barrels per day (bpd) in April, after a previous agreement to limit supplies agreed by Opec and Russia expires at the end of March.
A barrel of Brent crude has been almost halved in price since the start of December when it stood at more than $66. Prices dropped by almost 10% on Friday after news broke that the planned Opec deal had foundered.
On Saturday, Aramco slashed its official selling price for April for all its crude grades to all destinations.
The Australian share market suffered its biggest opening day fall since the global financial crisis in 2008 on Monday, as investors reacted to a slump in oil prices and the continuing spread of the coronavirus.
More than A$100bn was wiped off the value of shares in the first two hours of trading, as the ASX 200 index fell 6 per cent to 5,859.6.
Oil and gas producers bore the brunt of the sell off with Santos shedding a quarter of its value at A$4.96, Origin Energy falling 14 per cent at A$5.84 and Oil Search down 30 per cent at A$3.54 just after midday. The moves came after the price of oil crashed 30 per cent, sending shockwaves through global financial markets.
