OPEC oil shock triggers Black Monday sell-off
Like a tsunami warning, sharp drops in overnight Asian markets and American futures pointed to a steep sell-off when North American markets opened Monday morning. Overnight, Japan’s Nikkei slid 5%, Hong Kong sank 4.2%, and London tumbled 8.5%. However, it was still a shock when only four minutes into trading, Wall Street plunged 7% which automatically halted trading. This allowed panicked investors to cool off, but the major indices still closed down 7.5%.
The trigger of Monday’s avalanche was OPEC (Saudi Arabia) slashing prices, boosting production and launching a price war against Russia with an eye to diminishing American shale. Oil crashed 34% to a four-year low, suffering a one-day drop not seen since the 1991 Gulf War. In a nutshell, Saudi Arabia wants to regain dominance over the oil market. Now, it’s a question of who will blink first–the Russians or the Saudis? Neither can sustain such low oil prices for very long, because their societies need those oil revenues. Of course, the oil crash comes at the worst time–during the coronavirus scare, though new cases are declining in China and South Korea. Naturally, oil stocks were hammered. Halliburton halted trading three times before being crushed 37% by the closing bell. The only green on trading screens was the VIX, which skyrocketed over 30%. The oil-heavy TSX plunged over 10%
There was carnage–and buying opportunities–in every sector. Even Bay Street favourite, TD, got hammered over 12% to close at lows not seen since 2016. In contrast, Wall Street darling Nike fell only 5%. Gold ticked up only 0.37% after it zigzagged in and out of the red all day. Have we hit bottom? We’ll see on Tuesday.