CORONAVIRUS AND OIL KRACH

The collapse in the price of oil and the epidemic of coronavirus have caused stock market anxiety. Many indices completely unscrewed on Monday. Oil prices fell 25% on Monday, with Saudi Arabia and Russia having started a price war.

The Organization of the Petroleum Exporting Countries (OPEC), whose main actor is Saudi Arabia] and Russia (2nd world producer of black gold) met on Friday March 6, 2020, in Vienna, Austria, to evoke a drop in production.

Their aim was to maintain prices in response to the drop in demand caused by the coronavirus. But the Russian Minister of Energy, Alexander Novak, shattered the alliance between Moscow and Riyadh which had been presiding over the delicate balance of the market for three years. But they did not find an agreement.

OPEC weakening

With Russia refusing to cut production, Saudi Arabia responded by literally opening the floodgates: its daily oil production increased by a million barrels a day. It did not take more to cause a vertiginous fall in the price of black gold. Within hours, the oil world went from a tense situation to a major crisis. Prices fell sharply in Asia.

A barrel of brent North Sea plunged 25% to 33.90 dollars (30 euros). This dropout does not seem close to stopping. Market observers agree that, in the coming weeks, the price could reach its historically low level of 2016, below 30 dollars.

In Asia, the fall reached 30% on Monday, the largest drop since the Gulf War in 1991. On European markets, the drop was slightly less (- 20%).

A shock whose economic and social consequences are likely to be severe. The continuing coronavirus epidemic and concern, but also the collapse of the oil market have acted as a catalyst.

Stock market decline

The stock market unscrewed on March 9, 2020. Whether it is the Hong Kong Stock Exchange (- 4%), that of London (- 7%), the CAC 40 in Paris (- 8.3%, worst session since 2008) or still in Frankfurt (- 7.9%), no financial center was spared by a brutal plunge. So much so that on Wall Street (- 6% for the Nasdaq), trade was suspended for a quarter of an hour at the opening - a "circuit breaker" intended to avoid a general panic that had never has been used since its establishment in New York in 2013.

A global economic slowdown is increasingly likely.

Before Monday, the price of oil had already dropped due to the economic consequences of the coronavirus which slows down activity and therefore causes a drop in oil consumption.

Less oil consumed is a global production that slows down and creates less wealth, hence the general concern of the markets, accentuated by the decision of Saudi Arabia to "drown" the price of oil. "We are in a usual balance of power, Saudi Arabia has often had this kind of behavior

"A prolonged decline in consumption, in addition to prolonged closings of companies, would attack profits, lead to job losses and affect morale" economic players, wrote analysts Moody's on Monday.

Economic and political battle

But beyond this plunge in oil prices, a stake in geopolitical strategy is at stake. Indeed, it is above all an economic and geopolitical battle between the three biggest world producers which are the United States, Russia and Saudi Arabia. Historically, the OPEC cartel, led by Riyadh, led the game globally. However, since 2015, the black gold chessboard has been completely upset, with the rapid development of shale oil in the United States, and in particular in the Texan region of the Permian basin.

And Putin, exasperated by the US sanctions that have scuttled the Nord Stream 2, by not giving in to the Saudi kingdom's demands to stabilize black gold prices, at the OPEC meeting last Friday, in reality , a declaration of war against the Trump administration which does not hesitate to use oil as an economic and political weapon.

"We consider it the equivalent of a declaration of war on the oil market. A split between two of the largest producers of crude oil, Saudi Arabia and Russia, over how to respond to the collapse in demand caused by the rampant coronavirus epidemic, has caused oil prices to plummet, " writes the "Financial Times".