The black stuff has finally turned against the speculators. West Texas Intermediate slumped below $70 a barrel overnight, erasing the gains that followed the assassination of General Qassem Soleimani in January. Brent crude, the international benchmark, is now trading at $72.
50, its lowest since the summer of 2019. For British motorists, this means a welcome break at the pumps, with the average litre of unleaded expected to fall below £1.20 within a fortnight.
But let's not get too giddy. The rally's collapse tells a darker story about the fragility of demand. The coronavirus outbreak has shattered the narrative of global growth.
China's factories are shuttered, planes are grounded, and the world's second-largest economy is effectively in quarantine. The oil market, myopic as ever, only just woken up to this reality. The fundamentals were already bearish before the virus.
US shale output was surging, OPEC+ was struggling to hold the line, and the trade war had already slowed manufacturing. The Iran strike was a speculative fever, a short-term panic that offered a perfect hedging opportunity. Now that fever has broken.
The relief at the petrol station is real, but it comes with a cost. Lower oil prices mean lower headline inflation, which gives the Bank of England more room to cut rates. Governor Mark Carney is already eyeing the scissors.
But don't expect a rate cut to save your savings account. The yield on the 10-year gilt has fallen to 0.50%, punishing savers and rewarding borrowers.
The government's borrowing costs are at historic lows, which should be a boon for fiscal spending. Yet the Chancellor, Rishi Sunak, remains wedded to his fiscal rules. He would rather see the debt-to-GDP ratio fall than invest in infrastructure.
That is a classic Treasury mindset: fear of the bond market vigilantes, even when they are asleep. The capital flight from risk assets is not limited to equities. It is a global dash for cash, with the dollar strengthening against the pound, the euro, and the emerging market currencies.
Sterling is trading below $1.30 again, a level that used to be a floor. The UK's trade deficit, already wide, will worsen as exports become more expensive.
But the big picture is this: the oil price crash is a tax cut for consumers. It puts money back in their pockets. The question is whether they will spend it or hoard it.
Given the uncertainty over the virus, I suspect they will save it. And so the paradox of thrift returns. The economy needs spending, but individuals are more cautious.
The market is a pendulum that swings too far. We are now in the downswing. The only certainty is volatility.
That is the bottom line.
