World oil prices rebounded Monday in Asia and Europe, but worries about global growth continued to reverberate through markets, as participants zeroed in on countries seen as being most vulnerable to new shocks.
From Indonesia to Dubai and Japan, stock prices plummeted in line with Wall Street's plunge on Friday. Over the weekend, euphoria over cheaper oil and higher purchasing power for western consumers gave way to fears that the sharp drop in world oil prices could cause bigger problems for the economies--and particularly the banking systems--of countries that depend on oil and other commodities.
Analysts note that one common thread underlying much of the recent volatility is the fear that Federal Reserve may start tightening its monetary policy faster than expected due to the strength of the U.S. economy. The Fed's Federal Open Market Committee is to meet later this week against the background of active speculation that it will drop its previous commitment to hold interest rates at current levels for "an extended period" of time.
In Dubai, the most active stock market in the Middle East, the benchmark index fell a massive 15% in two days over the weekend and has now lost 29% in the two and a half weeks since the Organization of Petroleum Exporting Countries decided to remove the floor for an oversupplied crude market.
Oil prices themselves stabilized on Monday, as a fresh outbreak of fighting in Libya threatened to choke off the flow of oil from that country to the world market. Reuters reported that Libya's National Oil Company declared force majeure--a legal waiver on contractual obligations--on shipments from Libya's two main ports as fighting between two rival armed groups approached them.
Benchmark futures prices for oil bounced by more than $1.50 from a five-year low to $58.49 by lunchtime in Europe on the news. Alongside the steady increase in U.S. shale oil output, it's been the rebound in Libyan exports that have led to the current glut.
But that hasn't been enough to dispel concerns over the fragility of economies such as Russia, where the prices of bonds issued by some of the country's largest now banks are now reflecting clear worries about defaults.
The dollar rose another 2.5% against the ruble Monday to yet another all-time high of 59.80, while the RTS index fell 3.4%, amid concerns that the authorities don't have any convincing plan to stop the rot. IKEA and Samsung were the latest companies to announce sharp price increases Monday to reflect the drastic fall in the Russian currency in recent weeks.
Elsewhere, the Indonesian rupiah had its worst day since the 1998 Asian financial crisis, falling 2% against the dollar. Indonesia isn't an oil exporter any longer, but is dependent on exports of other commodities such as coal, which have also suffered sharp price declines this year.