Oil price fall nears 30%, prompting recession fears
The price of oil fell by more than 30% on Monday, the biggest one-day drop since 1991, after a fallout between major oil-producing nations over production cuts.
Saudi Arabia slashed its prices at the weekend after failing to convince Russia to back sharp production cuts, causing Brent oil futures to reach US$31.02 ($47.10) per barrel.
OPEC members had been meeting with Russia and other non-OPEC members to discuss how to respond to falling demand caused by coronavirus but failed to agree on a production cut, which could have been as much as 1.5 million barrels per day.
James Trafford, analyst and portfolio manager at Fidelity International, said: “We would expect to see a bottoming-out of stocks before the commodity itself, this is because equities are an anticipatory asset class which must look forward to a future recovery, whereas the commodity market has to clear the current supply and demand dynamics.
“A number of factors will weigh heavily on medium-term prices, including whether a political situation can be attained to resolve the apparent OPEC+ standoff and how quickly the virus-hit areas return to normal levels of demand.”
Nigel Green, chief executive of deVere Group, said: “Every major stockmarket is getting hammered as oil prices plunge due to a price war following the breakdown of Saudi Arabia’s oil-cutting alliance with Russia.
“This is an issue that will not be resolved overnight and it can be expected to have far-reaching consequences.
“The ultimate impact that the oil price war will have on an already vulnerable world economy that’s struggling to cope with the spread of coronavirus remains unknown. However, the risk of a short but severe global recession in 2020 has been heightened dramatically.”
AUTHOR
Laura Dew
Recommended for you
As the year comes to an end, Money Management takes a look at the biggest announcements that shocked the financial advice industry in 2024.
As the year draws to a close, a new report has explored the key trends and areas of focus for financial advisers over the last 12 months.
Assured Support explores five tips to help financial advisers embed compliance into the heart of their business, with 2025 set to see further regulatory change.
David Sipina has been sentenced to three years under an intensive correction order for his role in the unlicensed Courtenay House financial services.
