Gulf shares slump after OPEC disagrees on virus response

Stock markets across the Gulf suffered sharp drops in early trading Sunday amid a failure by OPEC and allied nations to cut production.

MENA

3 min read

The New Arab & agencies

08 March, 2020

Saudi Aramco shares have dropped below IPO price for first time [AFP/Getty]

Shares in the energy-dependent Gulf plunged to multi-year lows on Sunday after OPEC and its allies failed to clinch a deal on production cuts to support prices that have been hit by the novel coronavirus.

OPEC and its allies failed to clinch a deal on production cuts that would have offered support to energy markets, sending prices tumbling to four-month lows on Friday and prompting fears of an all-out price war.

The OPEC+ meeting was expected to agree to deeper cuts of 1.5 million barrels per day to counter the effects of the novel coronavirus, but Moscow refused to tighten supply.

Fears of a price war were stoked as Saudi Arabia - the world's top exporter - quickly responded by making significant cuts to its oil price.

All the seven bourses in the Gulf were in the red amid a panic sell-off over fears that energy prices, the mainstay of public revenues in the region, could collapse.

The Saudi stock market, the largest in the region, dived by 7.7 percent minutes from the opening bell after oil prices closed near a four-year low on Friday.

Shares in oil giant Saudi Aramco dropped below their IPO price of 32 riyals ($8.5) for the first time, losing some 6.0 percent to 31.98 riyals.

The world's biggest company launched on the bourse to much fanfare in December in a record-breaking initial public offering, but since then, its value has slipped from $1.71 trillion to $1.65 trillion.

The slide on the Saudi market also came amid accounts of high level arrests among the ruling family.

Multiple sources told AFP that Saudi authorities have detained three princes, including King Salman's brother and nephew, for allegedly plotting a coup, in a move that signals Crown Prince Mohammed bin Salman's tightening grip on power.

All other Gulf markets also tumbled. The Dubai Financial Market shed 8.5 percent at one point, its worst decline in six years, before recovering slightly.

Its sister market in Abu Dhabi also lost 7.0 percent, while the Qatar Stock Exchange dropped 3.5 percent.

Market leader Emaar Properties, the largest real estate company in the Middle East, dropped 9.1 percent to its lowest ever price of 2.99 dirhams (81 cents) a share.

Authorities at Kuwait Boursa intervened twice to suspend trading temporarily after the Premier Market Index slid by more than 7.0 percent.

The tiny markets of Bahrain and Oman dropped by 3.0 percent and 1.1 percent, respectively.

Oil price war

Bloomberg News reported on Sunday that Saudi Arabia had begun an all-out oil war after making the biggest cut in its oil prices in the last 20 years.

The Gulf powerhouse cut its price for April delivery by $4-6 a barrel to Asia and $7 to the United States, with Aramco selling its Arabian Light at an unprecedented $10.25 a barrel less than Brent to Europe, Bloomberg said.

"Saudi Arabia is responding to Russia's exit from output cuts by launching a price war," Bill Farren-Price of Petroleum Policy Intelligence told AFP.

Read more: A tale of two outbreaks: How Gulf countries succeeded where Iran failed on containing coronavirus

"They will boost volumes (exports) and seek market share at all costs. Oil prices will collapse on Monday" when global markets open, he said.

"The combination of higher oil production and lower demand due to the coronavirus makes that inevitable. It will be a bloodbath."

The new developments are reminiscent of the oil price war that erupted in 2014 and sent oil prices crashing to less than $30 a barrel.

The price fall battered revenues in the Gulf countries, forcing them to resort to austerity measures and borrowing to plug budget deficits.