Why are the world's stock markets panicking with oil?

• World markets fell sharply on Monday.
• The collapse in the price of oil and the epidemic of coronavirus have caused stock market anxiety.
• A global economic slowdown is increasingly likely.

Traders around the world woke up on Monday with lots of red on their screens. Whether it is the Hong Kong Stock Exchange (- 4%), the London Stock Exchange (- 8% at opening), the CAC 40 (- 5.7%) or even Frankfurt (- 7.4%), no place financial has not been 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.

At issue, the epidemic of coronavirus which continues to spread and worry, but also the collapse of the oil market, which acted as a catalyst. 20 Minutes takes stock of the situation.

Why did the price of oil plunge?

“OPEC [the organization of the oil-exporting countries, the main actor of which is Saudi Arabia] and Russia (the world's second largest producer of black gold) met last week to discuss a drop in production. Their aim was to maintain prices in response to the drop in demand caused by the coronavirus. But they did not find an agreement, ”recalls Philippe Waechter, director of economic research at Ostrum Asset Management.

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. She can afford it because her oil is much cheaper to produce than in other countries. An overabundant supply, a demand at half mast: it did not take more to cause a vertiginous fall in the price of black gold. 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%).

Monday of anxiety in the markets fearing a plunge in the world economy #Bourse # CAC40 #petrole https://t.co/iLt1D1QMym pic.twitter.com/HTN2oBlk6u

Why was there a global “contagion” following this shock?

"Oil is the most followed raw material, its price is watched like milk on fire," recalls Karl Toussaint du Wast, co-founder of Netinvestment. Before Monday, its price had already dropped due to the economic consequences of the coronavirus: factories shut down, planes that no longer fly have led to a drop in consumption of black gold.

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" notes Philippe Waechter. "What Saudi Arabia is doing could be a negotiating tactic to bring Russia to the table, but the market is unlikely to be optimistic in the short term," said investment bank Berenberg in a note.

Will prices at the pump go down?

They have already been falling since mid-January. According to the site carbu.com, which notably aggregates data from service stations, the liter of unleaded 95 (E5) costs on average 1.466 euros on Monday, down 4 cents over a month. Same observation for the liter of diesel (B7), which costs 1.375 euros on average (- 4.4 cents of euros in a month).

With the current fall in prices, "we should still have a downward adjustment, which will improve purchasing power in the short term," said Philippe Waechter. However, the price of crude oil represents only a part of the price of a liter of gasoline (35 to 37%), the rest being mainly composed of taxes (57% of the price), which helps to offset the increases or market declines.

Can the markets continue to go down?

"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. For Philippe Waechter, we can expect several difficult months: “Today, everyone is wondering how quickly we are going to have a global recession. Activity is likely to slow considerably in the second or even third quarter of 2020 if we do not find the means to deal with the coronavirus ”.

"For the moment, there are no positive signals," confirms Karl Toussaint du Wast. You only have to see the latest statements from Bruno Le Maire that the economic impact of the coronavirus will be stronger than expected. But we are not in a scenario like that of 2008, where we suddenly discovered that many American households were insolvent. Once the virus and its spread have been brought under control, notably through a vaccine, the machine will start up again. ”

World

Coronavirus: President of Portugal quarantines himself

Sport

Coronavirus: "The camera can become our organizing doctrine," warns Roxana Maracineanu

• Coronavirus
• Economy
• Oil
• Opep
• Finance
• stock Exchange