The plunge in oil prices alongside the recent market lows from the coronavirus marks the beginning of a recession, according to two market analysts.
On Friday, talks between OPEC and its allies collapsed in Vienna, sending oil plunging down 10%.
The markets are shaken by the threat of a price war between OPEC and its main ally, Russia, said Kerstin Braunn, president of Stenn Group, an international provider of trade finance.
“With markets fluctuating like crazy as the coronavirus takes its financial toll on global economies, and oil prices at unpredictable lows, for us this marks the beginning of a recession,” Braunn said in a note.
“Our research showed that at the beginning of the year, half of UK and US businesses predicted a recession and a third predicted an international global crisis. Just three months into 2020 and we're starting to see this play out."
Chinese Companies Will Default, Braunn Says
Many Chinese companies are operating at one month of cash flow only, and if not supported by their stronger buyers in the western world, it's likely they will begin to default, fueling a further global downturn, Braunn said.
Oil prices are likely to visit 2016 lows, said Artur Baluszynski, head of research at Henderson Rowe.
"Russia is willing to sacrifice its short-term economic wellbeing for longer term geopolitical goals of weakening Saudi Arabia and debt addicted US shale producers.”
The good news is that cheap oil is usually a big positive for consumers.
This takes time to feed through to the real economy, and with both supply and demand being significantly affected by the coronavirus, the markets will continue to focus on the downside.
Oil Price Action
Brent crude was trading down 21.58% at $35.50 at the time of publication Monday.