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Crude prices suffered their biggest daily rout since the 1991 Gulf War on Monday as top producers Saudi Arabia and Russia began a price war that threatens to overwhelm global oil markets with supply.
A nearly 25% slump in oil prices triggered panic selling and heavy losses on Wall Street’s main stock indexes as the rapid spread of coronavirus amplified fears of a global recession.
Saudi Arabia and Russia both said they would raise production at the weekend after a three-year pact between them and other major oil producers to limit supply fell apart on Friday.
Moscow had refused to support the Organization of the Petroleum Exporting Countries in making a deeper oil cut to cope with the substantial fall in demand caused by the impact of coronavirus on travel and economic activity.
Brent crude futures LCOc1 fell $10.91, or 24.1%, to settle at $34.36 a barrel. The contract fell by as much as 31% earlier in the day to $31.02, its lowest since Feb. 12, 2016.
U.S. West Texas Intermediate (WTI) crude CLc1 fell $10.15, or 24.6%, to settle at $31.13 a barrel. WTI earlier dropped 33% to $27.34, also the lowest since Feb. 12, 2016.
Saudi Arabia will experience lower revenue and may be compelled to make substantive changes to its ambitious government spending plans. Vision 2030, the government’s initiative to remake the Saudi economy, depends on vast amounts of government spending. Even though Saudi Arabia can produce oil at a cost of $2.80 per barrel, persistent prices in the $30 range will mean sacrificing big projects and investments to pay for day-to-day operations
Russia’s revenue also will decline, but President Vladimir Putin will persist. Putin telegraphed Russia’s move early last week when he said that the current oil prices were acceptable for Russia’s budget. Russia always puts Russia first.
Aramco, the Saudi national oil company that recently went public, will struggle to satisfy investors. As more domestic retail investors look to cash out come June, we could also see significant political disillusionment from a population that was enticed to invest by the government. There will be extreme pressure on the Saudi government to prop up Aramco’s share price, especially as the date for retail investors to cash in on their bonus shares approaches in June.
U.S. shale firms will also have a difficult time. Some will close, some will struggle and there will be layoffs and consolidations. Financiers will have to determine whether they want to continue to participate. The oil majors operating in fracking regions will emerge solidly, but firms with more debt will suffer. However, there will also be investors and industry players who will see a period of low prices as an opportune time to buy in.
Large, established international oil companies will have less incentive to invest in large-scale exploration and production projects that require large capital outlays and long lead times but produce large amounts of oil for extended periods of time. As a result, the threat of an oil supply shortage in the future will grow.
China is actually getting a huge boost from low oil prices. An oil price war between Russia and Saudi Arabia (China’s two largest suppliers of oil) will act like a stimulus package for China at a time when it could be facing severe economic difficulties.
GKSD Investment Holding said on Monday it does not intend to make an offer for NMC Health, days after the UAE-based hospital operator was relegated from London’s bluechip index.
GKSD, backed by sponsors of Italy’s Gruppo San Donato, in February confirmed that it was in the preliminary stages of considering an offer for NMC.
Oil prices suffered their biggest daily rout since the 1991 Gulf War on Monday as top producers Saudi Arabia and Russia began a price war that threatens to overwhelm global oil markets with supply.
A 20% slump in oil prices triggered another day of heavy losses on Wall Street’s main stock indexes as the rapid spread of coronavirus amplified fears of a global recession.
Saudi Arabia and Russia both said they would raise production at the weekend after a three-year pact between them and other major oil producers to limit supply fell apart on Friday. Moscow had refused to support OPEC in making a deeper oil cut to cope with the substantial fall in demand caused by the impact of coronavirus on travel and economic activity.
Brent crude futures LCOc1 were down $9.15, or 20.2%, to $36.12 a barrel by 1:06 p.m. EDT (1706 GMT). They earlier fell by as much as 31% to $31.02, their lowest since Feb. 12, 2016.
U.S. West Texas Intermediate (WTI) crude CLc1 fell $8.16, or 19.8%, to $33.12 a barrel. WTI earlier dropped 33% to $27.34, also the lowest since Feb. 12, 2016.
Oil titans Russia and Saudi Arabia have accumulated vast financial cushions that will help them weather a lengthy price war. It’s a battle of nerves - so who will blink first?
Global oil prices crashed by a third after Riyadh discounted its crude and signalled it would raise output. Shares in national oil champions Saudi Aramco and Rosneft tanked.
The world’s top two oil exporters each have war chests of around $500 billion to weather economic shocks and are making bullish noises about their stamina as they square up.
Moscow said on Monday it could withstand oil prices of $25-$30 per barrel for 6-10 years. Riyadh, meanwhile, can afford oil at $30 a barrel, but would have to sell more crude to soften the hit to its revenue, according to sources familiar with the matter.
A war of attrition would nonetheless be damaging and force both countries to make difficult adjustments to their economies the longer it dragged on.
Two of Dubai’s biggest banks bought loans made to DXB Entertainments PJSC from other regional lenders as part of plans by its majority owner to support the struggling theme park operator, according to people with knowledge of the matter.
Emirates NBD PJSC and Dubai Islamic Bank PJSC acquired the debt from mainly non-United Arab Emirates-based lenders at a discount so Meraas Holding LLC can restructure the park operator with a small group of Dubai-based banks, the people said, asking not to be identified because the information is private.
DXB Entertainments, which hasn’t posted a profit since listing in 2014, is set for another year of pain as the coronavirus hits visitor numbers at the three theme parks it operates in Dubai. The outbreak adds to the challenges it’s already facing as ongoing property and retail slump weighs on the economy. Last year, the company scrapped plans to open a Six Flags theme park in the emirate when funding became unavailable.
Government-backed Meraas holds a 52% stake in DXB Entertainments, which also counts Qatar’s sovereign fund and Kuwait Investment Authority as other shareholders. The company has about $1.5 billion of debt, according to data compiled by Bloomberg.
A woman wearing traditional dress watches the waterpark area at the Legoland Dubai theme park, operated by DXB Entertainments PJSC, in Dubai.
Saudi Arabia’s Crown Prince Mohammed bin Salman has just started an oil-price war. Winning it will come at a cost he might not be ready to pay for long.
If oil prices fail to recover and stay at less than half the level Saudi Arabia needs to balance its budget, the economy -- and the crown prince’s big ambitions to reform it -- may be among the biggest victims. The energy sector accounts for about 80% of the kingdom’s exports and two-thirds of its fiscal revenue.
Should Brent crude remain at $35 without an adjustment in spending, Saudi Arabia would run a deficit of nearly 15% of economic output in 2020, while its net foreign reserves could run out in about five years unless it uses other funding sources, according to Abu Dhabi Commercial Bank.
“Saudi has accumulated significant reserves that will allow it to see through a prolonged period of low prices, but this may come at a cost,” said Tarek Fadlallah, chief executive officer of the Middle East unit of Nomura Asset Management in Dubai. “The cost is the money that might otherwise be used to help the economy diversify.”
With oil erasing over a third of its value overnight after a messy breakup of the OPEC+ alliance, OPEC members are bleeding over half a billion dollars a day in lost revenue, according to Reuters calculations.
For the most part, oil is a top income source for members of the Organization of the Petroleum Exporting Countries and such a dramatic fall in prices will put strain on their economies, some of which such as Iran and Venezuela, are already on the brink.
Brent LCOc1 crude futures were down by as much as 31% to $31.02 on Monday, their lowest since mid-February 2016. At that low, prices were down nearly $20 a barrel from a high before the meeting of OPEC and its allies on March 6.
This means that in total, and based on their average February production, OPEC members lost more that $500 billion in revenue, according to Reuters calculations.
Oil prices crashed on Monday, suffering their biggest daily rout since the 1991 Gulf War, after the collapse of an OPEC+ supply agreement that now threatens to overwhelm the world with oil, inciting panic throughout the energy sector.
After failing to come to an agreement to cut supply, Saudi Arabia and Russia over the weekend pledged instead to ramp up production, which could quickly flood global markets with oil at a time when demand has already weakened substantially.
The market’s reaction has been furious, with crude futures plunging by nearly 20%, while energy stocks collapse as shale producers frantically cut future expenditures in anticipation of a drastically different outlook than a few days ago.
Brent crude futures LCOc1 were down $8.84, or 19.5%, to $36.43 a barrel by 10:49 a.m. EDT (1449 GMT). They earlier fell by as much as 31% to $31.02, their lowest since Feb. 12, 2016.
U.S. West Texas Intermediate (WTI) crude CLc1 fell $7.81, or 18.9%, to $33.47 a barrel. WTI earlier dropped 33% to $27.34, also the lowest since Feb. 12, 2016.
Equity markets across the Middle East nosedived on
Monday, extending their losses from the previous session, as oil prices fell
after Saudi Arabia slashed its official selling price for crude for April and
planned to raise production significantly next month.
The Saudi move, which came after Russia refused to support deeper cuts in
oil output cope with the outbreak of coronavirus, caused Brent futures to drop
22% to $37.05 a barrel by 1000 GMT.
"The Saudi reaction to the breakdown (with Russia) was to revert to the 2014
playbook. By precipitating an oil price collapse, they are looking to end their
subsidy of higher-cost producers," said Akber Khan, head of asset management at
Al Rayan Investment. "This is a painful strategy that requires time to play out
and failed on the previous attempt."
Saudi's index closed down 7.8% in its fourth straight day of losses,
leaving its year-to-date loss at 24.7% this year so far.
Saudi Aramco ended down 5.5% at 28.35 riyals ($7.55).
Saudi Arabia’s new oil strategy — a short, sharp shock to cow Russia — looks very much like its Yemen military strategy — a short, sharp shock meant to cow the Houthi rebels. The chances of it being any more successful are slim.
Crown Prince Mohammed bin Salman, the de facto leader of the kingdom, is gearing up to use the might of Saudi Arabia’s oil production capacity to deliver a crushing blow to rival producers. His aim appears to be to drive oil prices down so far and so fast that Russia realizes it made a terrible mistake in refusing to agree to deepen output cuts at Friday’s OPEC+ gathering, bringing more than three years of supply management to an abrupt and unexpected end.
In Yemen, MBS, as the Crown Prince is known, launched “Operation Decisive Storm” in 2015, using Saudi military power to inflict a devastating attack on Houthi rebels in Yemen. The campaign’s aim was to destroy the rebels and pave the way for the quick restoration of Saudi-backed and internationally recognized head of state, Abd Rabbuh Mansur Hadi.
It didn’t turn out to be quite so decisive. Five years later, the conflict drags on. The Houthis remain in control of a large part of the country and President Hadi is still in exile, while Yemen’s civilian population bears the brunt of the fighting, with three-quarters of the population needing humanitarian aid, according to the United Nations Office for the Coordination of Humanitarian Affairs. Meanwhile, the Houthis have taken the fight to Saudi Arabia, claiming responsibility for last year’s attacks on oil processing plants at Abqaiq and Khurais and the strategic East-West pipeline.
It has been two days since the highest profile arrests in Saudi Arabia’s history, but there has been no official explanation yet. Bloomberg News has learned that members of the Allegiance Council, a group that votes on matters of succession, have been told that Prince Ahmed bin Abdulaziz (the last surviving full brother of King Salman bin Abdulaziz) and Prince Mohammed bin Nayef (a former heir apparent to the Saudi throne with strong ties to the U.S. security establishment) had been plotting a coup.
That would be the most powerful direct challenge ever to a Saudi ruler — of a magnitude greater than the last, in 1969, when a plan by some air force officers to overthrow the monarchy never got off the ground. So you’d expect either King Salman or Crown Prince Mohammed bin Salman to address their countrymen, and the international community, with some words of reassurance. This hasn’t happened.
As of writing, some of the other powerful figures arrested have been released. But the two most prominent princes remain in custody.
The rumor mills of Riyadh have ground through every possible reason for the high drama of the weekend. Had MBS, as the current crown prince is known, simply grown fed up of the others because they’d been carping about him at family get togethers? Was he signaling to the rest of the House of Saud that he would brook no dissent? Could he simply be getting rid of alternate power centers in preparation for his own elevation to the throne? Or were the others indeed actively plotting to block his accession?
The Saudi riyal fell sharply against the U.S. dollar in the forwards market on Monday as oil prices plunged, Refinitiv data showed.
Oil prices were set for their biggest daily rout since the first Gulf War on Monday, losing more than a quarter of their value after Saudi Arabia slashed its official prices in a market where demand was already hit by the impact of the new coronavirus outbreak.
One-year dollar/riyal forwards, which are trades scheduled to take place 12 months from now, were at 85 points on Monday, up from Friday’s close of 10 points. They hit as high as 182.5 points, topping a high of 181.3 at the end of 2018.
The Saudi riyal is pegged at 3.75 to the dollar in the spot market, so banks often use the forwards market to hedge against risks.
Saudi Arabia has detonated a metaphorical nuclear weapon in the global oil market, blowing up prices and trade relationships with its decision to slash the cost of its own crude while ramping up output.
The Saudi move was no shot across the bows aimed at Russia’s reluctance to extend and boost a deal to curb production. Instead, it was a full-on declaration of war.
Saudi Aramco aims to lift its output above 10 million barrels per day (bpd) in April, possibly as high as 11 million bpd, two people with knowledge of the matter told Reuters on March 8.
Given its current output is around 9.7 million bpd, this means as much as an extra 1.3 million bpd could flood the market next month - just as demand is taking a major hit from the economic fallout of the global coronavirus epidemic.
Lebanon is about to enter the crucial first phase of talks aimed at renegotiating its $30 billion in Eurobonds after saying at the weekend it won’t pay dollar debt coming due on Monday.
The government’s declaration on Saturday that it won’t repay the $1.2 billion Eurobond puts the country on course for the first default in its history as it copes with dwindling foreign-currency reserves and inflation running in double digits. Talks will be complicated by high foreign ownership of some of the bonds and political divisions that have left the economy on the ropes.
“Sovereign defaults are relatively complicated to begin with, but this is compounded by the rather unique political environment in Lebanon,” said Abdul Kadir Hussain, the head of fixed-income asset management at Arqaam Capital in Dubai. “This will be drawn-out and complicated and will probably have many parties involved.”
Once boasting an unblemished record of bond repayment through war and political strife, Lebanon came undone after months of protests fed its worst financial crisis in decades just as remittances from abroad -- the main source of hard-currency revenue -- slowed to a trickle. Led by a new government backed by Hezbollah and its allies, one of the world’s most indebted nations will be taking on creditors at a time the global economy is reeling from the coronavirus outbreak and the start of an oil-price war.
What started with the biggest oil-price collapse since 1991 is shaping up to be one of the wildest days in years for global markets.
Panic selling, margin calls, vanishing liquidity and coronavirus work-from-home arrangements were just some of the challenges traders faced as risk assets plunged, currency volatility soared and money flooded into government bonds. They also had to figure out how an oil-price war and rapidly spreading outbreak will affect the global economy, companies and geopolitics.
“The day has been absolutely chaotic,” said Eugene Kang, whose team trades securities including Russian government bonds at NH Investment & Securities Co. from Seoul. “Financial markets have been caught off guard.”
The collapse in oil prices reverberated through Middle East markets for a second day, with Saudi Aramco plunging by the maximum allowed and yields on its bonds soaring.
Aramco’s 9.8% drop helped drive the Tadawul All Share Index down 9.2% as of 10:46 a.m. in Riyadh, while other major gauges in the Gulf tumbled. Omani rial forwards jumped to a record high in the offshore market, while Saudi riyal forwards rose fourfold.
The slump in Gulf assets came as oil registered its biggest drop since the Gulf War in 1991 following the breakdown of talks between OPEC and Russia in Vienna, which prompted Saudi Arabia to slash prices. Brent crude was trading at $35.17 a barrel as of 8:19 a.m. in London, with Goldman Sachs Group Inc. telling clients it could quickly dip into the $20s.
“The ability of oil-dependent nations to fund their respective fiscal programs this year are likely to be thrown into further doubt,” said Han Tan, a Kuala Lumpur-based market analyst at FXTM.
Saudi Aramco 2222.SE shares fell 10% on Monday after Saudi Arabia slashed its official selling prices for crude and set out plans for a dramatic increase in oil production next month, prompting a sharp drop in prices.
Shares in Aramco were trading at 27 riyals ($7.20), 15.6% below its initial public offering (IPO) price of 32 riyals, which in December valued the company at $1.7 trillion in the world’s biggest share offering.
Aramco fell below its IPO price on Sunday for the first time since trading began in December when the company’s listing was seen as a culmination of years of Crown Prince Mohammed bin Salman’s efforts to help diversify the economy away from oil.
Saudi stocks also fell 9.11%, while international bonds issued by Saudi Arabia and Aramco also plunged.
Losing more than a quarter of their value, oil prices were set on Monday for their biggest daily rout since the first Gulf War, after Saudi Arabia cut its official prices in a market already reeling from the impact of the coronavirus on global demand.
Saudi Arabia slashed its official selling prices and made plans to ramp up crude output next month after Russia balked at making a further steep output cut proposed by the Organization of Petroleum Exporting Countries to stabilize oil markets.
Brent LCOc1 crude futures were down $11.38, or 25%, at $33.89 a barrel by 0732 GMT, after earlier dropping to $31.02, their lowest since Feb. 12, 2016. Brent futures were on track for their biggest daily decline since Jan. 17, 1991, when prices dropped at the start of the first Gulf War.
U.S. West Texas Intermediate (WTI) crude CLc1 fell by $11.12, or 27%, to $30.16 a barrel, after touching $27.34, also the lowest since Feb. 12, 2016. The U.S. benchmark was potentially heading for its biggest decline on record, surpassing a 33% fall in January 1991.
Gulf stock markets dived in early trade on Monday, extending their losses from the previous session amid falling oil prices after Saudi Arabia opened the taps in a price war with Russia.
Saudi Arabia slashed its official selling price (OSP) for crude for April and plans to raise its production significantly next month after the Organization of the Petroleum Exporting Countries' pact with Russia to curb oil output fell apart on Friday.
The kingdom's move sent oil prices plummeting around 30%.
"The Saudi reaction to the breakdown was to revert to the 2014 playbook," said Akber Khan, head of asset management at Al Rayan Investment in Doha. "By precipitating an oil price collapse they are looking to end their subsidy of higher cost producers. This is a painful strategy that requires time to play out and failed on the previous attempt," Khan added.
Saudi Arabia, Russia and other major producers last battled for market share like this between 2014 and 2016 to try to squeeze out production from the United States
Saudi Arabia's benchmark index .TASI was down 9.1% at 6,220 points, its lowest in around four years.
State-owned Saudi Aramco 2222.SE, which traded below its initial public offering price of 32 riyals for the first time on Sunday, fell another 10% to 27 riyals ($7.20).
Al Rajhi Bank 1120.SE and the country's largest lender National Commercial Bank 1180.SE fell 9.2% and 9.9% respectively.
"We have low oil prices, low demand, and slowing world activity caused by the coronavirus. So, nothing could support the shares in today's trading," said Mohamed Zidan, chief market strategist in ThinkMarkers.
The Dubai index .DFMGI declined 8.8%, its sharpest daily fall since March 2006. Dubai Islamic Bank DISB.DU and Emirates NBD Bank ENBD.DU both shed 10%.
Air Arabia AIRA.DU fell 7% after Saudi Arabia suspended travelling from UAE.
Abu Dhabi's index .ADI was down 7.7%, its biggest intra-day loss since November 2009. Market heavyweight First Abu Dhabi Bank FAB.AD plunged 10%.
The Qatari index.QSIdropped 8.6%, the biggest single day loss in more than 11 years. the Gulf's largest lender, Qatar National BankQNBK.QAdived 8.7%.
Kuwait's premier index .BKP dived 10% triggering trading suspension for the rest of the session.
Katie Bays, co-founder of advisory firm Sandhill Strategy LLC, discusses the outlook for oil prices. Oil markets fell the most since the U.S. war in Iraq in 1991 after the disintegration of the OPEC+ alliance triggered an all-out price-war among the world’s biggest producers. Bays speaks with Paul Allen on "Bloomberg Markets." (Source: Bloomberg)
