Monday March Madness: The Plummeting of Oil and the Yielding of Bonds

COVID-19 and the Russia/Saudi Deal Hit the Markets Harder than Hard

Today oil drops 30%; mostly due to coronavirus and the falling out of Russia and UAE on their proposed OPEC deal. Today saw massive oil plunges, the second worst on record with the only time being worse you’d have to go back to 1991. The world is in fear and it can be directly linked to the COVID-19 scare or the Wuhan virus as they now call it. Although, other aspects internationally haven’t helped matters: with Russia and Saudi Arabia being unable to come to terms on a deal through OPEC, the rail blockades in Canada, unrest in Libya and that’s just naming a few. Frankly, it’s very easy to see why such global fear is making the markets (particularly oil) so volatile. 

1991 and Now

Monday Oil Madness is the worst day on record since the 1990s when Saddam Hussein prompted his second invasion of fellow OPEC member Kuwait. This had led to a very rough following year in 1991 for crude oil. Today’s drop can mostly be attributed to the OPEC deal of Russia and UAE being at a stalemate and the world-wide scare of COVID-19. Following this trend, we saw a 30% plunge today due to OPEC deal fall-out. Both parties don’t seem able to come to a conclusion, forcing an all-out war on oil price and the two just can’t seem to come to terms on deep out-put costs. 

What’s the Deal with the OPEC Deal? And Coronavirus

Tensions between UAE and Russia have never been higher as it relates to oil. The subsequent backlash see’s a multi-year low and a 30% drop-off in the markets. To simplify what’s happened, the sell-off of crude oil started last week and OPEC failed to strike a deal with its allies. Russia, wanted to see vast oil production cuts which led to the Saudi’s responding by egregiously adjusting their oil prices and wish to mass produce like no one’s seen before.  This kind of opposing viewpoints from two such superpowers makes it obviously hard to strike a deal with such differing opinions. Not to mention, there’s a sense of national pride almost always with these two countries, with something to prove almost always being rhetoric. 

How much of the hysteria with the coronavirus can be directly associated with the stock drop? When 18,000 deaths in the United States are from the flu, 9,000 in Canada and only 100 deaths in the US and zero reported linked deaths in Canada ,one has to wonder why such a public outcry? The answer is uncertainty and fear of the unknown, and we all know that anytime there’s such uncertainty the very volatile stock market is expected to take a hit. It’s a fear-bludgeoned market right now and unless someone is quick to call this virus what it is or prove its severity (which has been pretty vague to this point) expect for the markets to be messy over the coming weeks and possibly even months. 

Meanwhile in Canada

Today in my home country of Canada for example, rail blockades haven’t really helped matters for us specifically. Oil production and export in Canada has been fairly limited due to the unrest and the protests that revolve around the Coastal GasLink pipeline. Internationally speaking, the direct effects of: the protests, the pandemic of COVID-19, and the OPEC deal have caused the Canadian dollar to tumble to a three year low. We haven’t seen this level of oil-related questionability since February of 2016. Even then, the hit wasn’t as impactful as today, and Canadian oil companies are preparing themselves (especially in Alberta) for the biggest hit in decades. This is certainly what oil companies are trained for, but nobody can prepare fully for this kind of uncertainty.

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Seeing Red

Summing up what’s going on, Peter Cardillo, the chief market economist for Spartan Capital of New York, told CBC news: “This is basically panic selling.” He continued, “There’s a lot of fear in the market and it’s an indication that a global recession is not far away.” Really a global recession? It feels like the world just bounced back from 2008. Take a look at the overall market from today:

SymbolCompanyLastDateTimeChg.% Chg.
COMPNASDAQ Composite Index8,0403/9/20202:57 PM-535.5149-6.24%
DJIADow Jones Industrial Average24,0293/9/20202:57 PM-1,835.49-7.10%
DJTDow Jones Transportation Average8,1023/9/20202:57 PM-854.35-9.54%
DJUDow Jones Utility Average Index849.863/9/20202:57 PM-51.84-5.75%
GDOWGlobal Dow Realtime USD2,6733/9/20202:57 PM-210.95-7.32%
IXCONASDAQ Computer Index5,3393/9/20202:57 PM-345.473-6.08%
MIDS&P 400 Mid Cap Index1,6293/9/20202:47 PM-168.86-9.39%
NDXNASDAQ 100 Index (NASDAQ Calculation)8,0503/9/20202:57 PM-480.4904-5.63%
NYANYSE Composite Index11,2673/9/20202:42 PM-1,085.3011-8.79%
OEXS&P 100 Index1,2393/9/20201:47 PM-96.70-7.24%
PSENYSE Arca Technology 100 Index3,2163/9/20202:42 PM-263.8569-7.58%
RUIRussell 1000 Index1,5133/9/20202:42 PM-128.7902-7.84%
RUTRussell 2000 Index1,3133/9/20202:42 PM-136.0226-9.39%
SOXPHLX Semiconductor Index1,5783/9/20202:57 PM-122.035-7.18%
SPXS&P 500 Index2,7693/9/20202:57 PM-203.70-6.85%
XX:TNXCBOE 10 Year Treasury Note Yield Index5.073/9/20201:41 PM-1.99-28.19%
XX:TYXCBOE 30 Year Treasury Bond Yield Index8.843/9/20201:41 PM-3.31-27.24%
XAUPHLX Gold/Silver Index95.993/9/20202:57 PM-7.021-6.82%
XAXNYSE American Composite Index1,8913/9/20202:41 PM-259.1456-12.05%
XMINYSE Arca Major Market Index2,2653/9/20202:41 PM-201.6579-8.18%
XX:XOINYSE Arca Oil Index694.613/9/20202:41 PM-178.7957-20.47%

Courtesy of: marketwatch.com

An awful lot of red today, but surprisingly February at the month-start was actually pretty stable. February 21st, 2020 is when the massive dip started, its lowest point was around par today and the 28th of February. The power of a new disease can really put a huge burden on the markets. Coincidentally, COVID-19 really started coming into the public light on February 21st of this year. Since then we’ve seen some minor increases, but the effects of the drop are proving detrimental to our markets.

Unanswered Questions

One has to ask can Russia and UAE come to an agreement? If so, will it level out the impact of the Wuhan virus? Will the rail blockades in Canada finally “come down”? If so, how long will it take their economy to bounce back? Will there be breaking developments that answer so many unanswered questions revolving around the Wuhan Virus? One thing is for sure, as long as #coronavirus is still trending on social media; we can expect for the markets to stay at their lowest for the foreseeable future. You can bank on that statement!

Sources:
https://www.cbc.ca/news/canada/calgary/oil-prices-1.5490535
https://www.cbc.ca/news/business/markets-stocks-oil-1.5490697
https://www.aljazeera.com/ajimpact/oil-plunge-double-trouble-world-virus-hit-markets-200309024037830.html
https://www.marketwatch.com
https://www.cnbc.com/2020/03/08/oil-plummets-30percent-as-opec-deal-failure-sparks-price-war-fears.html
https://www.theglobeandmail.com/investing/markets/inside-the-market/market-news/article-canadian-dollar-tumbles-to-three-year-low-as-oil-plunge-lifts-rate-cut

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Brendon Stitt
Brendon Stitt
Brendon Stitt is a writer for NRN. He has a master's degree in business and a vast knowledge of economics. Stitt's a neighbor to the north from Canada, though follows US politics religiously. Stitt covers a variety of topics from sports, to business and the markets, pop culture, and so much more.