The markets have been trying to guess the scale of production cuts by OPEC+ members in reaction to the decline in Oil demand due to the coronavirus outbreak. We now have an all-out price war, after Russia refused to participate in additional cuts.
Saudi Arabia has returned to its 2014 strategy of market share defence and announced massive discounts to prices for April, with expectations of increased production to above 12 million bpd, but global demand is expected to drop by 3 million bpd this year.
The supply increase and significant drop in demand has led to an overnight price fall of over 30%, the biggest one-day losses since 1991 when prices declined by 35% during the Gulf war. As a result the markets are experiencing their worst sell-off since the coronavirus outbreak.
The Australian Dollar (against the US dollar) has tested its lowest level since March 2009, recording a low of 0.6318, the safe haven Yen is the best performing currency, having jumped to highs vs. USD since 2016. The equities markets is also under extreme pressure, with SP 500 suffering declines of 5% during the Asian session, if its falls again the it could fall into bear market territory and in Asia, Nikkei was down close to 5.7%.
This week may experience the fastest ever slump into a bear market, which is defined as a 20% decline from the latest peak, and the markets shouldn’t rule out another inter-meeting with the potential that the Fed could cut an additional 100bp.
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