Brent crude, the global benchmark, plunged $1.75 or 3.9% to $43.71 a barrel on the ICE Futures Exchange in London. That was the international contract’s lowest level in six years and first time trading below $45 a barrel since 2009. Brent has lost approximately 56% of its value compared to year-ago levels.
West Texas Intermediate (WTI) for October delivery – the US benchmark – fell $1.63 or 4% to $38.82 a barrel, a fresh six-and-a-half year low on the New York Mercantile Exchange.
Oil prices plummeted on the heels of another sharp equities sell-off in China, which also happens to be the world’s largest consumer of commodities and the second-largest consumer of oil after the United States.
China’s benchmark Shanghai Shenzhen CSI 300 Index plunged 8.8% or 314 points to close at 3,275.53. The benchmark gauge had dropped 12% the week before.
The Shanghai Composite Index plunged 8.5%, its biggest decline since the start of the global financial crisis in 2007.
Nearly 2,000 Chinese stocks, which represent two-thirds of the market, fell by 10%, the daily maximum allowed by Chinese authorities. The loss wiped out all year-to-date gains in the Chinese market, prompting news agency Xinhua to declare the day “Black Monday.”
European markets were also facing their biggest losses since 2009. Europe’s benchmark stock indices each declined by at least 4%, with the Euro Stoxx 50 falling 4.5%.
The latest panic in China stems from an unexpected currency devaluation from Beijing earlier this month in the wake of plunging exports. This wasn’t the first time this summer Chinese authorities intervened in the markets. The People’s Bank of China implemented stringent market controls in July after a three-week crash erased more than $3.5 trillion of shareholder value.
A weakening Chinese economy likely exacerbates the supply/demand imbalance in the oil markets. It will also have negative consequences on export-led nations that rely on Chinese demand.
Monday’s volatility also weighed on the currency markets. The US dollar weakened across the board, falling 1.7% against a basket of world currencies. The dollar suffered sharp losses against the yen. The USD/JPY plummeted 3.6% to 117.51.
The greenback gained ground against export-driven currencies like the Australian and Canadian dollars. The AUD/USD plunged nearly 150 pips to 0.7160. The USDCAD was up 72 pips at 1.3254 in the early New York session.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.