Oil Plunges, Testing $80; US Bonds Decline

01

Yesterday, international crude oil prices experienced a collapse, with WTI crude oil prices plummeting from $87.76 to a low of just $81.50.

So far, crude oil prices have completely broken through the $85 threshold and are now testing the $80 level.

Out of the five trading days last week, three days saw significant declines, and the first two days of this week were slightly more stable, but yesterday's drop broke through several round-number levels.

At the same time, Brent crude oil prices have also fallen significantly, dropping below $90 and closing at $88 per barrel.

However, for non-US dollar countries, the decline in crude oil prices does not seem as cheap as it appears. Although the prices have dropped, the exchange rates of various countries are also falling, and the depreciation rate of the currencies of many small and medium-sized countries is faster than the decline in crude oil prices.

Now, the risk of a global economic recession seems to be increasing, with PMI data from several economically developed entities continuing to fall, and some of these figures are already below 50, indicating that the economy is beginning to contract.

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Under these circumstances, demand for crude oil will decrease significantly, and the decline in oil prices is not due to increased supply but rather a forecast of reduced demand.

02

On the other hand, the energy crisis is manifesting in different ways. While the price of oil is falling, natural gas prices in Europe continue to rise.At the beginning of this month, Gazprom announced that due to significant safety hazards, it would halt the delivery of natural gas to Europe via the Nord Stream 1 pipeline. Such a simple move has further highlighted the energy crisis.

Of course, Russia's actions are reactive; it was Europe that took the initiative to provoke.

Last Friday, the G7 group reached a preliminary agreement to impose a price cap on crude oil originating from Russia. The U.S. Treasury further indicated that the price cap for Russian oil should be set at $44.

In response, Putin warned that if the West enforces the price cap, Russia will completely cease the supply of natural gas and oil.

Should this scenario unfold, Western countries would not only fail to obtain low-priced crude oil but would also have to bear the risk of rising oil prices due to reduced supplies.

03

The U.S. stock market has temporarily halted its decline.

Yesterday, the Dow Jones Industrial Average and the S&P 500 Index rose by 1.4% and 1.8%, respectively, while the Nasdaq Composite Index increased by 2.14%.

At the same time, the U.S. Treasury market also slightly halted its decline. The yield on the 30-year Treasury bond fell back to 3.42%, but this is likely a short-term correction.

Previously, the yield on the U.S. 30-year Treasury bond had risen significantly to 3.505%, reaching its highest level since 2014, and surpassing the peak seen in June of this year. The increase in yield indicates that bond prices are continuously falling.Due to the issuance of new corporate bonds, the market's selling pace of U.S. Treasury bonds is expected to continue to accelerate. This also suggests that U.S. Treasury bond yields will keep rising in the future.

At the same time, there is no sign of central banks around the world stopping their sales of U.S. Treasury bonds, and it is estimated that the wave of selling U.S. Treasury bonds will continue.