The bottom fell out for Mideast shares after Saudi Arabia fired the opening shots in an oil price war.
Every major gauge in the region suffered large declines after Aramco slashed official selling prices for April just a day after talks between OPEC and Russia collapsed in Vienna, marking the end of the alliance between Riyadh and Moscow credited with keeping prices stable.
Now, the market is staring down a demand shock from the coronavirus and a supply shock. Some have suggested oil could tumble to $20 (or lower).
Read more: In Dramatic Escalation, Saudi Arabia Effectively Declares Oil Price War
Shares in Dubai fell the most since the crisis, diving nearly 8%.
In Riyadh, stocks were bludgeoned. Shares of Aramco dropped an unthinkable 9% on the day.
It’s hard to imagine that state funds weren’t deployed to help arrest the decline, and yet, the stock couldn’t hold up. It’s now a full SAR2 below the IPO price.
Analysts were already lukewarm (and that’s being generous) on the company. Now, there’s no telling. The idea of selling more shares is likely off the table for the foreseeable future. The Crown Prince would never accept the valuation at these levels.
More broadly, Saudi shares dropped an incredible 8.3% Sunday. The Tadawul is basically in a bear market.
Mohammed Ali Yasin, chief strategy officer at Al Dhabi Capital in Abu Dhabi, called it “across-the board panic-selling”.
“We have revised lower our price forecasts for ICE Brent. For 2Q20, we are now expecting prices to average US$33/bbl vs. US$56/bbl previously”, ING said Sunday, in an e-mailed note, adding that “given the scale of the surplus over 2Q20, we would not be surprised to see ICE Brent testing the lows seen in early 2016”.
On Friday, crude plunged the most since the crisis, falling into a bear market in the space of just 10 sessions. Oil is down more than 30% in 2020 on demand destruction concerns amid global quarantine and travel restrictions tied to the COVID-19 crisis.
Prince Abdulaziz apparently wasn’t lying when he warned everyone present in Vienna that Russia’s recalcitrance to the proposed cuts would end up having dramatic consequences for everyone involved.
According to Bloomberg’s account (which cited a person present at the discussions), he “left his counterparts with a grave warning: ‘Trust me… this will be a regrettable day for us all'”.
Hmm. Guess after the Sunday shows, I’ll be switching over to Bloomberg.
We are in the midst of WW III.
Instead of taking over land for economic gain, countries are putting all efforts to take over markets ( oil, pharmaceuticals, technology, manufacturing etc).
China has been “silently” doing this for decades, Russia not so silently.
Ever read the “Art of War” by Sun Tsu?
Speaking of sneaky war, doesn’t it seem like the Saudis are a little over-enthusiastic in their “war” against Russia? Their first action of europe-directed price cuts looks like very public confirmation this is a russia dispute, but the real body blow (hiking output to as much as 11m bpd) will be a coupe de grace for US shale, who, let’s face it, have been the real problem child in oil. The Russia dispute looks like maskirovka to me, Godzilla and Mothra pretending to fight while making sure that Tokyo is thoroughly laid to waste. Russia doesn’t need to hide the fact they’re attacking US shale, but the Saudis do. Covid’s demand shock changes the calculation by increasing the reward (oil price collapses even further) while reducing the risk (oil was depressed anyway, why not take a swipe at shale now and get it over with?) MBS would absolutely not be shy about letting Aramco sp collapse near-term in service of the longer-term “good”.
I can tell you one thing about Texas, having lived here for many years. Here, you’ll run across many stories of people who put all of their money on the table and make one roll of the dice. The rewards can be very high, if they’re lucky high rollers.
When oil prices are up, the high rollers are everywhere.
But when oil prices are down for any extended period of time, the high rollers always start mailing in the keys to their house to the bank, and high-tail it outta town before anyone knows what’s going on; leaving everybody else with their pants down around their ankles.