Oil prices plummeted around 24 percent on Monday, the worst daily decline since 1991. But on Tuesday prices began to turn upwards; U.S. WTI futures climbed 7.87 percent as of 1:54 p.m. HK/SIN to $33.58 per barrel, and Brent crude futures were up 8.38 percent to $37.24 per barrel.
Monday’s carnage in the oil markets was prompted by a disintegration of the OPEC+ partnership, an agreement between the world’s largest oil producers that previously had implemented production cuts to buoy prices. Over the weekend, Russia announced that it would no longer take part in these cuts, prompting Saudi Arabia to announce a price cut on its oil and an increase in production, to secure its stake in the dwindling market. The prior production cuts agreed upon by OPEC are set to expire at the end of this month.
Analysts are concerned that a flood in supply while demand is reduced due to coronavirus shutdowns will impact the markets even more to the downside and will require a long period of recovery before prices return to their normal levels.
Emerging Market Currencies Struggle
Many emerging market currencies weakened against the U.S. dollar on Monday after the decline in oil prices. The dollar gained over 6 percent against the Russian ruble and over 4 percent against the Mexican peso. The Indonesian rupee also struggled against the dollar. The decline in emerging market currencies will be felt particularly strongly due to the already difficult economic times faced by these markets due to the spread of the coronavirus.
Emerging markets, especially Mexico and Russia, have high exposure to the oil markets, so it is hardly surprising that volatile movements in oil prices would instantly flog those currencies. Though many central banks, including the Federal Reserve, have cut interest rates to respond to the crisis, analysts are concerned that central banks in developing regions may lack the ability to take such steps.
In more common currency trading, the dollar surged against the yen on Tuesday afternoon after falling steeply on Monday. The greenback gained 2.22 percent to 104.61. The greenback was also modestly higher against the euro and pound after falling against both on Monday.