Coronavirus pushes oil prices below $50. Will the stock market follow the same path?

Coronavirus pushes oil prices below $50. Will the stock market follow the same path?

Posted on Monday, February 10 2020 at 6:12 pm GMT+0000

Coronavirus pushes oil prices below $50

The sharp sell-off in oil markets in the past two weeks was due to heightened concerns about a slowdown in global demand and decreased possibility of an OPEC+ emergency meeting with Russian’s disagreement to such a meeting.

Although coronavirus fears and the sharp drop of Chinese oil demand, were the main drivers of the sharp decline in prices, but oil was suffering before the virus spreading.

Oil prices continued their downside march even after Libya, Iraq, Nigeria and Kazakhstan curbed their producation, an this is a very discouraging sign.

Recently, prices had broken the 50$ key support, which managed to contain the downside pressures more than once last year, and with demand continuing to slowing down and the American production continuing to rise while Lybia’s output might increase if a political solution is reached, oil might extend losses towards 47$ and 44$.


So how will it affect the stocks?

The strong risk appetite boosted by upbeat corporate earnings in the last quarter supported the parabolic rally in US equities.

But failure of the Chinese Authorities to halt the spread of the corona virus, and to quickly develop a cure or vaccine for the virus will have very costly implications not only for the Chinese and Asian economies, but for the global economy as well and certainly the American companies.

In 2003, SARS costed the global economy 40 billion dollars. At that time, the Chinese economy represented 4% of the global economy, and currently Chinese gross domestic product represents 17% of global output. Nowadays, most countries became interdependent, and there is no doubt that all the countries will be affected by the virus.