Oil Crash Only The Tip Of The Iceberg
At this point, it’s not likely a question of ‘if’, or even ‘when’, the next financial crisis will hit. It’s more likely just a question of how big it will be.
In the early ‘80s, OPEC members—Saudi Arabia aside—were producing oil above the agreed upon caps. By 1986, Saudi Arabia, frustrated with all the cheating, gave up on limiting its own production. It flooded the oil market and sparked a 55% freefall in prices. Not so long after, the stock market plummeted 22.6% in a single day—the single biggest loss in the market’s history.
Related: Analysts See 2016 Oil Price Rise, While Traders Bet On Fall
And then there was the 2008 housing crash, which came after a pattern of reckless lending and inflated housing prices. Housing prices collapsed, leaving the banks holding unrecoverable debts. Gradually, the crisis expanded into The Great Recession. Again, oil played a role here, having dropped more than $40 per barrel in less than six months in early 2008.
The common denominator here has always been falling oil prices.
And so here we are again—on the brink of another disaster in the wake of plummeting oil prices, rampant OPEC production, and skittish investors.
The Dallas Fed estimates that the actual cost of the 2008 recession was somewhere near $14 trillion. Ominously, today’s oil prices are well below the 2008/2009 lows, now down more than 75% from their highs just 18 months back.
Related: Why The Oil Price Crash Is Killing The NHL
In January 2015, Goldman Sachs said that at $70/bbl, around $2 trillion of future investments all over the world were at risk. Today’s prices are hovering between $28 and $30 per barrel.
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