Crude oil loses over -30% at the opening. OPEC talk failure

Up to 30 percent has been overrated Petroleum after the weekend. A terrorist attack on the world's largest refinery, a breakthrough in research on alternative drives? None of these things - fear of coronavirus and a stalemate in OPEC negotiations with Russia.

After the recent declines we saw last week, many investors thought that fear of coronavirus, as well as the effects that a potential epidemic could have on the economy, is now over. Some even assured that the market reaction was too big and nervous, and stopping the falls is a fact and now we will laboriously make up for the losses.

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Investors who think so and have long positions on oil or European and Asian indices must swallow a bitter pill after the weekend. The falls were so huge that hardly any Stop Loss he withstood it. The infamous leader was the price of crude oil, which started trading on Sunday night with a gap of ... 30 (in words: thirty) percent! This is the biggest drop in quotations since 1991. A barrel of brent crude was traded at just US $ 31,67 on Monday morning, the lowest price since February 2016. Asian indices also fell. In Australia and Japan, declines reached 5%. The German DAX index predicts a downward gap of 5 percent before the opening.

Crude oil chart, D1 interval. Source: xNUMX XTB xStation

Black Monday in the markets

Why such a big panic of investors? One of the reasons is, of course, the coronavirus. You can almost be sure that the data from China were greatly overestimated, and the officially reported disease and mortality statistics - to put it mildly - differ from reality. Over the weekend, the Italians reported that 133 people died of coronavirus in just one day, and that over a thousand more people were diagnosed with the disease. In addition, almost the entire northern region was cordoned off. You cannot leave it or enter it. 16 million people live there. However, Italians, like Italians, found ways to bypass it, because the information was leaked to the media. So you can be sure that the coronavirus will spread, despite the fact that as much as 25% of people have been officially banned from moving. the population of Italy. All public institutions are also closed: schools, universities, theaters, cinemas and clubs.

The impact of the coronavirus on the economy is already visible - cities, factories, schools are being closed, restrictions on production and consumption, and panic appearing in some places. All this means that even taking into account the facts that, for example, in Poland many more people die each year at pedestrian crossings, the economy will certainly suffer. How much? As you can see, investors prefer not to check this on their wallets.

Russia does not agree to cut production

The second reason for such a huge drop in oil prices is the failure of OPEC talks with Russia. Until now, it was possible to reach an agreement at times of crisis, but this time Russia did not agree to reduce production, which always increased the price of the raw material. Although we already knew the decision on Friday, then - compared to the decline over the weekend - the reaction was moderate.

The OPEC cartel with Saudi Arabia at the forefront proposed a reduction in daily production of 3,6 million barrels. It's almost 4 percent. world production. However, Russia, which is the world's third largest producer of oil, did not agree (the largest amount of oil is produced by the USA). What's more, Russia will not comply with previous restrictions introduced by OPEC, so it may be very interesting in the coming weeks on the oil market.

In the morning prices began to rebound slightly, but the huge fall has not yet caused investors to consider current levels as a good opportunity to buy discounted commodities and indices, so stopping the sell off is the only market reaction so far.