Oil prices are falling sharply on expectation that the world’s largest oil importer, China, will import significantly less oil in the coming months as the economy is hit by fallout from the virus epidemic. As of end January Chinese oil demand has dropped by about 3 million barrels a day, or 20% of total consumption and the price for the US West Texas Intermediate oil is below $50. This is the greatest oil demand shock since the 2008 financial crisis.
Historically the greatest economic depressions have started with unexpected events on the periphery of major financial markets. That was the case in May 1931 with the surprise collapse of the Austrian Creditanstalt Bank in Vienna which brought the entire fragile banking system of postwar Germany down with it, triggering the Great Depression in the United States as major US banks were rocked to their foundations. Will it be again an unanticipated event outside the financial markets, namely the China 2029 Novel Coronavirus and its effects on world trade and especially on US-China trade that triggers a new economic depression?
Until around January 20 when the news broke about the coronavirus exploding in China’s Wuhan and surrounding cities, global financial markets and especially in the US were optimistic that the combined actions of the Federal Reserve to pump in more liquidity and…
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