An oil price war between Russia, Saudi Arabia and the US has combined with the impacts of the coronavirus to devastate the Australian stock market, which is now heading towards bear territory.
The All Ordinaries index was down 356 points or 6 per cent by mid-morning and on track for its worst daily decline since 2008, according to CommSec.
Adding to the crisis, North Korea launched another three projectiles off its east coast today.
The oil price plunge of 30 per cent to $US31 over the weekend was caused when Russia refused to cut oil production on the back of weak global demand caused by the coronavirus.
Analysts said was a move designed to impact the US over recent pipeline approvals and American oil shale producers which have much high costs than traditional producers.
The Saudis then dropped their oil prices in a bid to get the Russians back to the OPEC negotiating table, but also as a way to gain market share.
RBC Capital Markets said that Saudi Prince Abdulaziz stuck to his guns and lamented afterwards that “today will be a regretful day.”
“Today’s price action puts at risk the fiscal health of the vast majority of sovereign producers and budget cuts and increased debt loads are now looming in the event of a prolonged period of low prices. For the most politically and economically fragile producer states, the reckoning could be severe,’’ RBC’s Helima Croft said.
The decision could have enormous political implications for countries like Iran which is already struggling with sanctions and the coronavirus. It will also impact superannuation funds but it could be good news for oil and energy users like airlines and for everyday petrol consumers.
IG Australia economist Kyle Rodda said the concern was the impact it would have on the bond market and “the heightened risk of financial contagion’’.
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