Ask Prof. Wolff: COVID-19 and the Stock Market
Democracy at Work
Democracy at Work
Russia-Saudi Arabia oil price war
On 8 March 2020, Saudi Arabia initiated a price war with Russia, triggering a major fall in the price of oil, with US oil prices crashing 34%, crude oil crashing 26%, and brent oil falling by 24%. The price war was triggered by a breakup in dialogue between the Organization of the Petroleum Exporting Countries and Russia over proposed oil production cuts in the midst of the 2019-20 coronavirus outbreak. Oil prices had already fallen 30% since the start of the year due to a drop in demand. The fall in prices was one of the causes of the global stock market crash on 9 March 2020, colloquially known as Black Monday.
As a result of the 2019-20 coronavirus outbreak, factory output and transportation demand fell, bringing overall demand for oil down as well, and causing oil prices to fall. On 15 February 2020, the International Energy Agency announced that demand growth would fall to the lowest rate since 2011, with growth falling by 325,000 barrels per day to 825,000 barrels per day, and a contraction in consumption by 435,000 barrels per day. Although demand for oil was falling globally, a drop in demand in China's markets, the largest since 2008, triggered an OPEC summit in Vienna on 5 March 2020. At the summit, it was agreed to cut oil production by 1.5 million barrels per day through the second quarter of the year, with the group expected to review the policy on 9 June during their next meeting. On Friday 6 March 2020, Russia rejected the proposal, with oil prices falling 10% after the announcement.
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