Source: The New York Times
The recent turmoil, across stocks, bonds, commodities and currencies, reflects investors’ growing anxiety about global growth. The swirl of forces are interconnected, so the volatility in one area can quickly spread to other countries and other markets. And few markets escaped the mess on Friday, with Chinese, European and American stocks all down broadly.
The tumult in China, where stocks are now in bear territory, is helping drag down oil prices. China, an important energy consumer, is facing a slowdown that could hurt its demand for crude.
Oil prices are also getting crimped by the threat of new supplies’ arrival, adding to the existing glut. The lifting of sanctions on Iran, part of a nuclear deal, paves for the way for the country to start exporting more oil.
It all makes for trouble in the stock markets.
The sell-off started in China on Friday, with the main Shanghai index dropping 3.6 percent. The index has fallen 20 percent from its most recent high, a threshold that analysts generally regard as a bear market.
China’s troubles have had a knock-on effect for oil. At below $30 a barrel on Friday, crude is off more than 70 percent over the past 18 months.
European and American stocks followed the same path down.
In early trading on Wall Street, the Standard & Poor’s 500 index fell 1.9 percent, and the Dow Jones industrial average was down 2 percent. The Euro Stoxx 50-stock index down 2.4 percent, and the FTSE 100 fell 1.9 percent.
Whether the volatility subsists will depend largely on the direction of the global economy — and how it effects the need for oil.
In China, the world’s second largest economy, , after the United States, underlying growth continues to slow. The government is expected to report next week that economic growth cooled last year to 6.9 percent. The figure that would be the envy of many countries but that would signal China’s slowest pace in a quarter of a century.
China and other growing Asian economies have become important customers for oil exporters like Saudi Arabia and Iran, particularly as rising production of oil in the United States has squeezed out American imports. If the economic weakness in China leads to a sharp fall in demand, the big producers would most likely discount their oil even more aggressively to attract buyers.
Oil prices are also under pressure because an easing of international sanctions on Iran could come in the next few days. Sanctions have crimped Iran’s production and sales in recent years. If they are removed, Iran could start to ramp up production and rekindle sales to former customers in Europe and elsewhere. In the coming months, that could add 300,000 to 400,000 barrels a day to an already oversupplied market, analysts estimate.
Sentiment in the market is now very negative, analysts say, with traders betting on still lower prices, perhaps even heading toward the $20-a-barrel range.