OPEC-Russia oil price dispute brings global financial system to its knees

March 9, 2020 @ 16:33 by Richard Dawson

After already sustaining huge losses a fortnight ago, global stock markets have again crashed today (March 9) wiping billions of pounds off the value of the world’s largest companies.

At the time of writing, the FTSE100 index is trading around 7 per cent lower than its previous close, with American markets largely following suit in what is being described as the biggest one-day sell off since the 2008 financial crisis.

“I don’t remember many days quite as savage as this”, said John Dance, founder and principal of independent stockbroker Vertem.

The global spread of the Covid-19 outbreak has been ruinous for confidence in the marketplace in recent weeks, as investors fear that containment measures to prevent further spread of the disease could grind whole domestic economies to a halt.

But the prospect of an oil price war between the Organisation of the Petroleum Exporting Countries (OPEC) and Russia is probably the biggest factor in today’s sell off.

“What’s really pushed the markets today is less the Coronavirus outbreak and more what looks like an oil price war between Saudi Arabia and Russia”, added John.

“The price of oil has been quite aggressively weak year-to-date and that’s purely off the back of Coronavirus really.

“On Friday, to try and combat the oil price decline, OPEC agreed to cut their production in order to support prices and redress the supply/demand imbalance.

“OPEC obviously wanted non-OPEC countries to agree to the same sort of production cuts, but Russia rejected that.”

After Russia’s rejection, Saudi Arabia decided to cut its official selling price and increase production, causing an unprecedented 22 per cent same-day decline in the value of oil per barrel.

The share price of British Petroleum and Royal Dutch Shell has collapsed today as a result, dragging the whole FTSE100 index down with them.

John said: “Whether this event is accelerating what may have been subsequent Coronavirus-led declines is hard to say.”

As the world’s fund managers and wealth managers take stock on one of the worst days in living memory, questions about whether we are now entering a bear market and where it might bottom out loom large.

John concluded: “Markets have always been a forward-looking indicator. So, in many respects, what the markets are telling us is that it’s going to get worse before it gets better.”

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