Following the recent “Black Swan” event with oil prices dropping 30% and the major stock indices dropping 5% in the week of March 9 due to the failure of agreement between OPEC and Russia, and the price war started by Saudi Arabia, eToro senior analyst Toby Wu has this commentary:
“We’ve seen oil prices fluctuate recently against a backdrop of the coronavirus and the disagreement between Russia and Saudi Arabia on extending the current production output. The no-deal between Saudi and Russia signifies the end of a four-year collaboration between OPEC and the 10 non-OPEC member states, led by Russia.
The implications go beyond oil prices itself. The knock-on effect on major oil companies has been brutal, with investors in full panic mode. It’s hard to see sentiment turning in the near term as oil companies share prices have tanked and the rest of the market feeling sharp impacts in the short term.
On the flip side, this could have a positive influence on the currencies of countries that import oil, helping some European industries to hedge against the negative impacts from the Covid-19 outbreaks. In the long term, lower prices could also alleviate some airliners’ share price plunge.
From a retail investor’s point of view, some may be wondering if it will impact their dividend. However, if the yield does not get cut, despite oil prices slumping, then these stocks will become a bargain long-term bet.”
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