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China’s Stock Market Meltdown Dragging Global Markets With It

China’s Stock Market Meltdown Dragging Global Markets With It

Global market upheaval continues to inflict damage across the energy industry.

The Shanghai Composite fell by 8.5 percent, and that has sent shockwaves around the world. The Dow Jones Industrial Average plummeted by over 1,000 points on August 24, before recovering some ground. The Stoxx Europe 600 fell 7.3 percent. The DAX index in Germany lost 6.5 percent. The U.K.’s FTSE lost nearly 5 percent.

The Chinese government has fitfully and erratically intervened to prop up the stock markets since June, with crack downs on short selling, a devaluation of the currency, and injections of new liquidity into the market. The moves have been confusing, and the perception of control and poise by the Chinese leadership is starting to fall away. Related: This JV Could Trigger A Shale Boom In An Unexpected Venue

Meanwhile, the meltdown in commodity prices continues. Prices have tanked in part because of the significant slowing in the Chinese economy, and picked up pace on August 24 as the problems have accelerated.

WTI dropped below $39 per barrel during midday trading, off 4 percent. Brent also dropped more than 4 percent, to just $43.43 per barrel. A sell off is occurring for the share prices of energy companies across the board. BP’s stock price was down 5 percent on Monday. ConocoPhillips, Statoil, and French oil giant Total saw their share price drop by a similar percentage. Related: Oil Price Collapse Triggers Currency Crisis In Emerging Markets

The fear is that the problems are a sign of something much bigger and much worse than simply a slowing GDP rate in China. If the stock market meltdown is followed by a broader economic crash, that would spell trouble for economies around the world. Emerging markets would be hit first. Their economies are dependent on selling commodities to China. The crash in prices has already hurt growth, but the troubles would deepen if China’s economy continues to crater. Related: Why Water Is More Important To Iran’s Future Than Oil

Of course, as the world’s second largest economy, few countries will be left unscathed.

For oil, that raises the possibility that prices continue to decline. Just a few months ago, few would have predicted that WTI would drop below $40 per barrel, eclipsing the low points seen in early 2015. So, there is little reason to think that further drops are out of the question. Suddenly, oil prices below $30 per barrel do not seem outside of the realm of possibility.

By Charles Kennedy of Oilprice.com

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