NEW YORK: Oil prices suffered their biggest daily rout since the 1991 Gulf War yesterday as top producers Saudi Arabia and Russia began a price war that threatens to overwhelm global oil markets with supply. A 20 percent 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.

Stock markets in the energy-rich Gulf states were battered yesterday. All seven Gulf Arab bourses were in the red for the second day running, shedding hundreds of billions of dollars of market value. Kuwait’s Premier index tumbled 10.3 percent, forcing a suspension of trading for the second day in a row. The country’s All-Shares Index lost 8.6 percent.

The Saudi market, the largest in the region, dived 7.8 percent over the day, with energy giant Saudi Aramco plunging by 10 percent before recovering around half of that by close. The biggest listed firm in the world has lost some $250 billion of its value over the past two days. Its capitalization stands at $1.51 trillion, way below the $2 trillion sought by the kingdom in last year’s IPO.

Dubai Financial Market dropped 8.3 percent at close, its worst level in seven years, but authorities suspended trading in most leading stocks after they slumped the maximum daily limit of 10 percent. The Abu Dhabi Securities Exchange shed 8.1 percent to a four-year low, while the Qatar Stock Exchange was down 9.7 percent. The tiny bourses of Oman and Bahrain dipped 5.6 percent and 5.8 percent, respectively.

The seven bourses had taken an initial beating Sunday, the first trading day of the week, shedding tens of billions of dollars as the Saudi market tumbled by 8.3 percent. Oil prices heavily impact markets in the six-nation Gulf Cooperation Council (GCC) region as exports generate between 70 percent and 90 percent of public revenues. The crash in crude prices comes as all six member states – Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates – resort to austerity measures to rein in persistent budget deficits.

Oil prices crashed as markets opened yesterday, with the benchmark Brent crude diving to $36 a barrel. That added to panic as investors hunkered down for a potentially long price war. The message from Saudi Arabia is: “As long as it takes”, said Anas Al-Hajji, a Texas-based oil expert. “Given the sharp price decline… it is hoped they will start cooperating again in May,” but the rout could last until the producers’ cartel OPEC meets in July, he said. As the deadly coronavirus claims more lives and hits economies around the world, dealers are fleeing riskier assets and diving into safe havens such as gold and the yen. US Treasury yields have also hit record lows.

Saudi Arabia launched its assault on prices Sunday with the biggest slash in two decades, Bloomberg News reported, after OPEC and other top producers failed to clinch a deal to reduce output. The Friday meeting was expected to produce an agreement on deeper cuts to counter the impact of the coronavirus, but Moscow refused to tighten supply. The Saudis “are responding to Russia’s exit from output cuts by launching a price war,” Bill Farren-Price, director of Britain-based R S Energy, told AFP.

In response, Riyadh slashed its price for April delivery by $4-$6 a barrel to Asia and $7 to the United States. It also cut its crude prices for clients in Europe, where Russia exports the most. Russia’s decision had already battered prices, and analysts have suggested they could head towards $20 if producers cannot cut a deal.

Brent crude futures were down $9.15, or 20.2 percent, to $36.12 a barrel by 1706 GMT. They earlier fell by as much as 31 percent to $31.02, their lowest since Feb 12, 2016. US West Texas Intermediate (WTI) crude fell $8.16, or 19.8 percent, to $33.12 a barrel. WTI earlier dropped 33 percent to $27.34, also the lowest since Feb 12, 2016. If losses hold, yesterday would be the biggest one-day percentage decline for both benchmarks since Jan 17, 1991, when oil prices fell a third at the outset of the US Gulf War.

Energy stock prices have also fallen sharply, and shale producers began cutting spending in anticipation of lower revenues. Shares for Exxon Mobil Corp and Chevron Corp fell by 9 percent and nearly 14 percent respectively. Saudi Arabia plans to boost its crude output above 10 million barrels per day (bpd) in April after the current deal to curb production expires at the end of March, two sources told Reuters on Sunday. Saudi Arabia also cut its official crude selling price. The kingdom has been producing around 9.7 million bpd in recent months.

Russia, one of the world’s top producers alongside Saudi Arabia and the United States, also said it could lift output and that it could cope with low oil prices for six to 10 years. OPEC, Russia and other producers had cooperated for three years to restrain supply in a group known as OPEC+. Other countries in that group are likely to raise supply and cut prices to compete, adding supply to a market already awash with crude.

“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” Goldman Sachs said. Saudi Arabia, Russia and other major producers last battled for market share in 2014 in a bid to put a squeeze on production from the United States, which has not joined any output limiting pacts and which is now the world’s biggest producer of crude thanks to a rapid rise in output from the shale sector.

The global outbreak of the coronavirus prompted OPEC to seek additional output cuts. More than 110,000 people have been infected in 105 countries and territories and 3,800 have died, the vast majority in mainland China, according to a Reuters tally. China’s efforts to curb the coronavirus outbreak has disrupted the world’s second-largest economy and cut shipments to the biggest oil importer. The International Energy Agency said yesterday oil demand was set to contract in 2020 for the first time since 2009. The agency cut its annual forecast and said that demand would contract by 90,000 bpd in 2020 from 2019.

Major banks also have cut their demand growth forecasts. Morgan Stanley predicted China would have zero demand growth in 2020, while Goldman Sachs sees a contraction of 150,000 bpd in global demand. Bank of America reduced its Brent crude price forecast to $45 a barrel in 2020 from $54 a barrel. “The radical shift in policy suggests that Saudi will allow inventories to build sharply over the next three quarters,” said a Bank of America Global Research report. “As a result, we now expect Brent oil prices to temporarily dip into the $20s range over the coming weeks.” – Agencies