GLOBAL stock markets have tumbled wiping around £125 billion off the value of the FTSE 100 index of leading shares as concern about the coronavirus and the plunge in the crude price following a spat between Saudi Arabia and Russia caused panic.
The FTSE 100 closd the day down 7.7 per cent following the biggest single day fall since the financial crisis of 2008, as traders reacted to alarming developments over the weekend.
News that Italy had decided to quarantine 16 million citizens in the north of the country to try to slow the rapid spread of the coronavirus heightened fears it could trigger a global recession.
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Nerves were also rattled by ructions in oil markets. Talks between Saudi Arabia and Russia about a deal to help offset the impact of the coronavirus virus on demand for crude fell apart on Friday.
The Brent crude price fell around 20 per cent yesterday morning leaving oil trading at close to a four-year low, with grim implications for firms in the North Sea.
Industry champion Oil & Gas UK said companies would be “immensely cautious” about their spending plans as they watched the situation unfold.
The scale of the fears rippling round the world was underlined by the situation on Wall Street where shares fell so fast initially that trading was halted temporarily.
The S&P 500 fell more than 7% triggering an automatic breaker designed to stop shares spiralling out of control. It regained a little ground after trading resumed.
Yesterday’s developments reflect deepening concern about the outlook for the global economy.
The coronavirus outbreak has already had a devastating impact on China, where it began, the effects of which have been reverberating around the world.
Firms in sectors such as aviation saw their share prices come under renewed pressure yesterday after falling sharply in recent weeks.
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Neil Wilson, chief market analyst at Markets.com, said yesterday would be remembered as Black Monday warning: “If you thought it couldn’t get any worse than the last fortnight, think again. The blood really is running in the streets, it’s utter carnage out there.”
The FTSE 100 closed down 496.78 at 5,965.77, its lowest level in almost four years. The index has fallen more than 20% since its January peak taking it into bear market territory.
The price of a barrel of Brent Crude fell 30% initially, before settling at around 20% down on a day earlier, at $36.10 per barrel. It has fallen by almost 50% this year.
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The fall reflects concern that global supplies of crude are set to run well ahead of demand, which the International Energy Agency said could drop for the first time since 2009 this year. .
Experts warned the oil price could fall much further unless Saudi Arabia and Russia patched up their differences. Saudi Arabia wants major exporters to agree to cut production by more than Russia is yet prepared to accept.
“Brent could even drop into the teens,” said Bank of America Merrill Lynch (BofA).
The fall in the crude price could benefit consumers and other businesses if it feeds through to energy prices.
But the prospect will cause deep concern in the North Sea oil and gas industry, which is emerging only slowly from a slump that caused devastation across the supply chain.
Thousands of jobs were lost in the North Sea as firms slashed activity in response to the fall in the crude price from $115/bbl in June 2014 to less than $30/bbl early in 2016.
Oil & Gas UK noted firms had increased efficiency in response.
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But the share prices of firms with significant North Sea operations were hit hard yesterday as investors took a dim view of their prospects.
Oil giant BP saw its shares fall by 19.5% while Royal Dutch Shell A shares closed down 17.6%. Both are important constituents of the FTSE 100
Premier Oil shares plunged 57.5%. The company has greater relative exposure to the North Sea than BP or Shell.
The crude price fall from 2014 was partially reversed after Opec members and Russia agreed late in 2016 to a programme of production cuts which was subsequently intensified.
While the deal was recently extended to the end of March, both Saudi Arabia and Russia appear to have given up on it for now.
Saudi Arabia slashed the price of crude it sold over the weekend.
Analysts reckon it may be trying to force Russia back to the negotiation table.
However, Russia may not be in a hurry to accept a deal that involves the country agreeing to deeper cuts to production.
It is concerned that US shale producers, which are not covered by Opec + deals, have taken advantage of the production curbs to win market share.
In a Global Research report BofA said Saudi Arabia's dependence on oil earnings meant it could hardly afford a protracted price war.
The bank seems to think an agreement to curb production will be reached.
It has cut its forecast for the Brent crude price to average $45/bbl in 2020 from $54/bbl.
The fall in the crude price could benefit consumers and other businesses if it feeds through to energy prices.
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