Last week has been dramatic because Saudi Arabia has decided to flood the market with cheap oil in attempt to crush their competitors in the global oil market. This has lead to disagreements in the Organization of Petroleum Exporting Countries (OPEC) and the market has reacted in a very aggressive way. The price of oil has fallen by 30 percent to a 5 year low. The Brent oil has fallen to $33 and Bloomberg has called this the “one of the most dramatic bouts of selling ever”. This has turned out to be the biggest fall in oil prices in history within one day. The OPEC has failed to reach an output agreement deal and there is a potential that this group lead by Russia and Saudi Arabia will collapse because of these disagreements. Russia is refusing to bend to Saudi Arabia’s wish for a further reduction in 2.1 million barrels in terms of output per day. This will not continue past the end of this month and this will allow them to pump as much oil as they wish. It already looks like the oil market crash has already begun in the midst of stock market crash and the uncontrolled production will make the oil prices drop further. The future partnership between the Organization of Petroleum exporting Countries (OPEC) remains uncertain. On top of this, we have global economic fallout and with this stock market crash, the volatility of the US oil has skyrocketed to the highest level in five years. Gold and other commodities have also been affected by this collapse of oil prices. Fund managers who have incurred losses from oil will have to liquidate some of their positions on gold as a way of covering the losses.
Some of the exchange traded funds that tracks the US markets have posted big declines and at the same time the United States 10-year treasury yields have fallen to 0.5 percent. The 30 years treasury bonds have also tanked to 0.9 percent. Because of this, the United States yield curve is below 1 percent for the first time in history. This yield curve points out that the US economy is experiencing a historic slowdown and it might be a matter of time before we find ourselves in the middle of a horrific stock market crash.
Right now we are at a year of reckoning where all bubbles are bursting.
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