There is not one specific fundamental factor that would correctly explain the oil-price meltdown. Instead, its a composition of negativity compounded by a general lack of confidence in the recovery.

The US dollar has rallied, and that is providing a negative feedback loop.

China has considerably slowed buying – the shopping splurge at rock bottom prices filled up its physical reserves, causing a backlog of tankers at its ports.

Regardless of how deeply Saudi Aramco slashes the official selling price (OSP), with no room in storage tanks, “price elasticity of demand” is negligible.

US inventories have come down but not enough to offset lower demand. They are expected to increase as the US Labor Day holiday officially marks the driving season’s end. for the gasoline market, it ends what has arguably been a season of despair.

Crack spreads are at historic lows and are not expected to recover any time soon. There has been an increase in floating storage demand, which will eventually be a problem as the overhang is considerable. The employment situation in the US is also expected to worsen as bankruptcies mount.

The biggest shock for oil

But perhaps the biggest oil shocker of them all is the age of globalisation, as we knew it could be over and done as the battle for global technology supremacy between the US and China takes on a more sinister connotation.

Indeed, things turned pretty ugly overnight across most asset classes as the deterioration in US/China relations and the impending reversal of unbound globalisation heralded in the September of the disorder.

In one sense, this has been happening for some time, but with the Covid-19 sudden stop disruptions to supply chains, these trade supply chains my never recover, which throws yet another spanner into the oil markets works.

Indeed, lots of reasons to be gloomy right now.

After months of a gradual low volatility price melt-up, the rapid fall in prices has hit the complex like a sledgehammer.

These positions “wipeouts” are very reflective of broken markets and one that is in desperate need of a fiscal fix. Indeed, US consumer spending is probably as much of a risk to the view as is the end of the summer driving season.

Fiscal impasse in the US shows up in oil demand (or lack of it)

However, several weeks have now passed since critical relief programs from the CARES Act expired. Congress remains deadlocked. So, with 28 million American unable to put gas in their car, while living on handout until the next government check arrives, or if it arrives.

The fiscal stalemate is starting to show up in oil demand.

The US Senate returned from summer break on Tuesday, with the House of Representatives due back next Monday. Congress faces the need to deliver a funding bill by the end of the month to avoid a government shutdown, right amid the negotiations over a new fiscal package.

For now, the ball is in the Republicans’ court. They have been split between those (primarily seeking re-election on Nov. 3) who favour a more massive fiscal stimulus versus those who are opposed to more largesse (mainly those that do not face a vote in November).

If the Senate can find a bill that will win the support of 51 (out of 53) Republican Senators, the Republicans will drag the Democrats back to the negotiating table.

For now, the Democrats are unified behind the much more extensive, USD3.4 trillion package passed by the House of Representatives several months ago and are content to watch from the sidelines.

Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp