European and Asia-Pacific stock markets plunged on Monday as global investors abandoned their stocks in response to a drop in oil markets after the failure of OPEC talks on Friday. This decline was compounded by growing fears of a global recession due to the spread of the coronavirus.
In Europe, the wide pan-European Stoxx 600 fell 6.2%, placing it more than 20% of its February peak, and in bear market territory. Equities in the Asia-Pacific region also posted significant losses, driven by sharp declines in Japan and Australia, which saw their benchmarks fall by 5.07% and 7.33% respectively.
The catalyst behind the sale was a sharp drop in crude oil prices, triggered by fears of a price war after OPEC failed to reach an agreement with its allies on production cuts.
Saudi Arabia takes its first hit at the start of the price war
Saudi Arabia said it plans to push crude oil production above 10 million barrels per day (bpd) in April after the expiration of the current production-limiting agreement between OPEC and Russia – known as OPEC + – in late March, two sources told Reuters on Sunday. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to increase to 12.5 million barrels per day.
The Saudis also cut their OSP for April for all categories of crude to all destinations from $ 6 to $ 8 a barrel, sending oil plummeting.
European hammered oil stocks
Energy giant BP plunged 18.7 percent and Royal Dutch Shell 14 percent by mid-morning as oil stocks plummeted, CNBC reported. British oil Tullow fell 31.6%. TGS-NOPEC, Aker BP, Lundin Petroleum and Subsea 7 shares all fell more than 20%.
Oil stocks in the Asia-Pacific region have suffered heavy losses
Santos Australia fell 27.01% while Beach Energy fell 19.39%. In Japan, Japan Petroleum Exploration fell 12.69%. According to CNBC, the stocks of PetroChina and CNOOC listed in Hong Kong fell by 9.63% and 17.23% respectively.
Chinese overseas shipments drop
Chinese data released this weekend showed that overseas deliveries from January to February were down 17.2% from the same period a year earlier, marking the largest drop since February 2019, according to Reuters. Analysts had forecast a 14% drop as the coronavirus epidemic disrupted supply chains and slowed demand.
Reuters also said China had declared a trade deficit of $ 7.09 billion for the period, compared to an expected surplus of $ 24.6 billion.
The downturn in the Japanese economy
The Japanese Cabinet Office reported that the Japanese economy fell 7.1% year-on-year in October-December. This is a larger decrease than the first preliminary estimate of an annualized 6.3% withdrawal. It was also worse than economists’ median forecast of 6.6% contraction and the largest decline since April-June 2014, according to Reuters.