Frank Kane

DUBAI: Financial markets around the world tumbled on Monday as investors took fright at the growing economic risks from the global coronavirus outbreak and the prospect of a prolonged decline in oil prices.

On Wall Street, the world’s biggest financial market, leading shares fell by 7 percent on opening, wiping billions of dollars off investments, after the big markets in Asia and Europe had all experienced sharp declines. New York recovered slightly in later trading, and after a rollercoaster day the Dow Jones Industrial Average closed nearly 8 percent down.

The Middle East was no exception to the wave of selling, with the Tadawul in Riyadh closing 7.75 percent down on the day. UAE markets fell by similar amounts. Regional markets have lost about $400 billion in value over the past two days.

“We are now in a period of true turmoil. Fear is now all-pervasive,” oil historian Daniel Yergin said on US TV.

Global investors, already spooked by the economic fallout from the coronavirus outbreak, were panicked by the prospect of a price war in energy markets after Saudi Aramco, the world’s biggest oil company, offered customers big discounts on crude supplies from next month.

Oil prices fell sharply in global trading. Brent crude, the benchmark for Middle East oil, plunged by nearly 30 percent — its biggest fall on opening in nearly three decades. It recovered significantly in later trading, to stand at $37.27 per barrel, down 17.5 percent.

Independent oil company shares were savaged. BP fell 19 percent, Shell 15 percent and ExxonMobil 8 percent. Tadawul-quoted shares in Saudi Aramco, the world’s largest oil company, were 5.5 percent down at close.

The damage was even worse for oil companies with significant exposure to US shale, potentially the biggest losers from a price war. Occidental Petroleum, a big investor in Texas shale, fell 35 percent at halftime trading in New York.

Nevertheless, investment experts said the carnage in the oil sector would not necessarily lead to a financial crisis. 

“The prospect of heightened instability in energy markets adds to the pessimism created by coronavirus, but the fall in oil prices will not on its own lead to a financial crisis like 2009,” Tarek Fadlallah, chief executive of Nomura Asset Management in Dubai, told Arab News.

Mazen Al-Sudairi, head of research at Al-Rajhi Capital in Riyadh, said the oil sector was “one of the major casualties” of the market volatility prompted by the coronavirus outbreak, and that a “cascading effect” could be expected on the local economy.

However, he also saw potential for optimism. “Upside surprise could be a seasonal fade-out of virus implications, renewed Opec+ agreement, an increase in oil prices as supply reduces, and sharp de-escalation of Chinese situation.”