Oil prices slide on Saudi Arabia’s supplies’ hike, stocks sink

LONDON — Oil prices slid Wednesday after Saudi Arabia and Gulf partner UAE stepped up a price war with plans to flood the global markets while an early rally in equities evaporated as investors nervously awaited a US relief plan. 

Crude dived after the UAE joined Saudi Arabia in plans to hike supplies and raise their oil production capacity by millions of barrels a day in response to Russia’s refusal to agree output cuts to support prices.

A day after the kingdom said it would boost supplies by at least 2.5 million barrels per day to 12.3 million bpd in April, Riyadh said it will further boost capacity to 13 million bpd. 

UAE national oil company ADNOC said it was ready to raise output by one million bpd to 4 million bpd and increase capacity to 5 million bpd.

Markets had been showing signs of much-needed stability in early trade following two days of wild gyrations.

Crude had provided support, rising for a second day after Monday’s massive meltdown.

But jittery investors slowly sold out as Wednesday wore on and then slumped deep into the red.

Both main crude contracts fell more than 3 per cent, having been up as much as five per cent earlier in the day.

The price war follows Russia’s rejection last week of a Saudi-led proposal to deepen production cuts to support oil prices as demand falls due to the economic disruption caused by the coronavirus outbreak.

Production cuts by the Organisation of the Petroleum Exporting Countries (OPEC) cartel led by Saudi Arabia and an alliance of producer nations including Russia has helped prop up oil prices the past couple years in the face of rising production by the United States.

Wednesday’s U-turn on oil markets spurred a similar move in equities markets. 

Asian stock markets had been well in positive territory in morning trading but finished lower.

London stocks ended 1.4 per cent despite the Bank of England slashing its key interest rate to a record low 0.25 per cent and the government pledging fiscal stimulus worth £30 billion ($39 billion, 34.4 billion euros).

Paris and Frankfurt also slipped, while Milan added 0.3 per cent as the Italian government promising even more stimulus.

The main European markets are now firmly in bear market territory, having lost more than 20 per cent of their value in a quick period under the onslaught of concern over the coronavirus. 

US markets also moved sharply lower on Wednesday as the World Health Organisation called the coronavirus outbreak a pandemic.

“This negative bias has been facilitated by reports that there is indecision in Washington still about the fiscal stimulus that should be enacted to deal with the fallout from the coronavirus,” said market analyst Patrick J. O’Hare at Briefing.com

“The president would like the payroll tax to be suspended but reportedly there is bipartisan disagreement over that idea. Instead, lawmakers are said to be interested in more targeted economic measures,” he added.

Treasury Secretary Steven Mnuchin said that US President Donald Trump is “very much focused” on the package that could include a payroll tax cut, among other options, as data showed that nearly three-quarters of US firms are suffering supply disruptions due to the coronavirus epidemic.

“Government intervention is seen as a sign of weakness by traders as they feel if the administration needs to take such action, the situation must be dire,” said analyst David Madden at CMC Markets UK.