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).
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'”.