Global markets have taken a major hit from a fall in oil prices.
Share this article
Stock markets have tanked around the world as investors deal with the fallout from coronavirus and Saudi Arabia and Russia face off over oil prices.
Here we look at the causes and impacts of the crash.
– Why have stock markets crashed?
The main reason is the Saudis and Russians having a huge falling out over the price of oil. In a massive gamble, the Middle Eastern kingdom, which produces around a tenth of the world’s oil, slashed the price of a barrel.
The row hit markets across the world, with the FTSE 100 losing more than 570 points at one point, or nearly 9% of its value.
– Is this because of coronavirus?
Partly. But make no mistake, this is an oil rout first and foremost.
Having a worldwide virus outbreak at the same time is making investors nervous. Coronavirus is fanning the flames, with oil demand – and therefore prices – down as countries and businesses reduce travel. The companies hit hardest are oil producers, although the entire market is suffering.
– Why have oil prices dropped?
Last week Opec, an association of oil-producing countries, met in Vienna with non-Opec allies including Russia.
For more than a year the partners have starved the market to push up prices. Last Friday Saudi Arabia, which is the biggest producer in Opec, pushed to slash production further.
However Russia, the biggest of Opec’s allies, refused. As a result Saudi Arabia announced it was abandoning the cuts and slashed the cost of its oil, triggering a price war between Riyadh and Moscow.
– When was it last this bad?
Monday’s drop on the FTSE 100 was the biggest one-day fall since October 2008, the height of the financial crisis. The index also reached its lowest point since 2016.
The drop in the oil price is the worst one-day slide since the outbreak of the Gulf War in 1991.
– Will the price of petrol fall?
Supermarkets are likely to lead the way as experts predict the price of unleaded petrol could fall by as much as 10p per litre.
“It should translate to some serious cuts at the pumps, particularly as the price of both petrol and diesel is still overpriced despite two rounds of cuts from the supermarkets last month,” said RAC fuel spokesman Simon Williams.
– What happens next?
It depends who blinks first. Experts have speculated that Saudi Arabia’s shock move is an attempt to pressure Moscow into coming back to the negotiating table. Russia’s Finance Ministry has said it has enough spare cash to see through the battle for six to 10 years.
However both countries are highly reliant on oil revenue so will want to come to a solution as soon as they can.
– What will the US do?
The first reaction of President Donald Trump was to take the side of American drivers. “Good for the consumer, gasoline prices coming down!” he wrote on Twitter.
However the price fall is likely to have a serious impact on the US oil industry, which is booming with the advent of fracking. This could put pressure on the president to change his tune.