An oil price shock sent stock markets around the world crashing on Monday following a row between oil cartel OPEC and non-member Russia, fuelling fears of a global recession this year. 
A spat between Russia and OPEC (Organization for Petroleum Exporting Countries) led to a sharp fall in oil prices on Monday and sent markets tumbling – with the FTSE 100 entering into bear market territory.
The blue-chip index had plummeted around 8.5 per cent in early trading, falling below 6,000 points. At mid-day, the FTSE 100 had recovered slightly to be down 6.5 per cent on the day and sitting at 6,038 points.
Performance of FTSE 100 YTD
Source: London Stock Exchange
A further joint cut in oil production had been mooted but this did not happen, prompting Saudi Arabian authorities to increase production and cut prices.
As such oil prices suffered their greatest one-day fall in recent times – with the price of both Brent and West Texas Intermediate crude oil down by more than 20 per cent – and have added to the unfolding coronavirus-inspired disorder in markets.
“This is an oil price collapse on a scale not seen since the Gulf War," said Adam Vettese, analyst at investment platform eToro.
“Unless there is a fresh agreement between the Saudis, who can manage with oil at this level, and Russia, which can’t, we can expect the price to remain under pressure.”
Joint cuts were first agreed following earlier oil price lows in 2016 and were designed at squeezing shale oil producers in the US, but had limited success.
Meanwhile, confirmed coronavirus cases around the world continued to rise over the weekend as more countries began to properly diagnose the virus and reveal the true extent of its spread.
As well as a fall in markets, investor fears over a potential recession have started to manifest themselves in government bond yields, which have also dropped to new lows.
“The move saw the biggest drop in the oil price in decades, and equity markets followed suit, as well as the yield on the 10-year US Treasury falling to a new record low,” said Emma Wall, head of investment analysis at Hargreaves Lansdown.
“UK gilt yields are similarly paltry with the 10-year offering now just 0.10 per cent. The two-year is now in negative territory.”
Nigel Green, chief executive of deVere Group, said a global recession “is now almost inevitable” in 2020 following the fall in stock markets and government bond yields.
He said: “The ultimate impact that the oil price war will have on an already vulnerable world economy that’s struggling to cope with the spread of coronavirus remains unknown.
“However, the risk of a short but severe global recession in 2020 has now been heightened dramatically.”
The latest sell-off means that FTSE All Share has entered bear market territory, with oil majors BP ad Royal Dutch Shell among the most badly hit in early trading.
“The FTSE 100 is taking an absolute pasting, sinking 8 per cent to trade under 5,900, hitting its lowest level since the immediate aftermath of the Brexit referendum,” said Neil Wilson, chief market analyst at Markets.com.
“It’s made worse by the oil majors which make up such a portion of the index. Shell tumbled 20 per cent, with BP falling 25 per cent to under £3 [per share]. BP was [last] trading at this level in 1996.”
Nevertheless, while the timing of the oil trade war is bad timing for markets already hamstrung by the coronavirus.
“The more weeks pass, the more our ‘this is one of those things’ thesis is challenged. Not so much because of the nature of the virus itself, but rather because of the nature of our response,” said George Lagarias (pictured), chief economist at Mazars. 
“This will be the fourth straight week of negative market returns and the worst downturn since December 2018, which took place over the space of three months.”
Yet, the speed of the correction should be discounted, said Lagarias, given the impact of algorithmic trading on markets, which “tends to exacerbate both the breadth and velocity of the downturn”.
“While COVID-19 looked like a possible ‘black swan’, the truth of it is that the virus is much less deadly than SARS, MERS or the Ebola outbreak,” he said.
“Yet it has caused significantly more damage to financial markets. Why? We believe it is a confluence of runaway market prices and simple fear.”
While the falls in markets are reminiscent of the global financial crisis, rate cuts might not be able to resolve the issues this time around.
“Quantitative easing might be more effective as it is money immediately directed to risk assets, as opposed to rate cuts which constitute merely an opportunity for leverage,” he said.
“What will it take to stop the economic and financial slide? We believe that governments and central banks may well try a combination of aggressive fiscal easing, helicopter money (i.e. money printed that goes directly to consumers) and more monetary easing in the next few days.”
He added: “Our base case scenario is that fears are overdone and markets should respond to aggressive stimulus.
“If, however, the measures taken in the next few days fail to calm markets, then investors should consider the real possibility that the 11-year economic and financial expansion may come to an end.”
Darius McDermott, managing director of Chelsea Financial Services, said investors have been nervous about a potential meltdown in markets for years as the post-crisis bull market carried on unchecked.
“As always, it has been the unforeseen that has proved the catalyst for a correction, not the many ‘known’ worries,” he said. "The oil trade war is an unnecessary shock for an already fragile global stock market.
“Could share prices fall further? Quite possibly. But losses are not losses until you crystallise them. So, investors need to hold their nerve and think long term.”
He finished: “The worst thing you could do now would be to redeem your investments. And, if you thought the stock market was good value last week, it is even better value today."