By Steve Goldstein, MarketWatch
European stocks dropped more dramatically Monday than in any single session since the financial crisis, after Saudi Arabia started a price war and Italy locked down a key region.
The Stoxx Europe 600 (STOXX:XX:SXXP) retreated by more than 7%, its worst single-day percentage drop since the 2008 financial crisis, as it closed at its lowest level since Jan. 2, 2019. On the London Stock Exchange, there were 3,217 decliners and just 238 advancers.
Brent crude-oil futures (IFEU:UK:BRN00) plunged nearly $9 a barrel.
Saudi Arabia slashed prices after failing to reach an agreement with Russia on production cuts and announcing it would increase output next month.
The International Energy Agency cut its global oil demand, now expecting a 90,000-barrel-a-day decline this year, from a previous forecast of an increase in demand of 825,000 barrels a day.
Smaller oil players including Tullow Oil (LON:UK:TLW) and Aker BP (OSL:NO:AKERBP) lost about a third of their value.
Of the majors, BP (LON:UK:BP) dropped 19% and Royal Dutch Shell (LON:UK:RDSA) fell 17%.
“Already facing a supply-demand imbalance, the market is set to see significantly more crude oil in the short term. We also view the cuts to Europe as signaling Saudi Arabia’s intention to force Russia back to the negotiating table, with the aim of delivering a new production-curb agreement,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
The market did not seem to price in much of a gain for consumers from lower gasoline prices.
The boost is “unlikely to be large enough to stabilize a world economy” coping with the impact of COVID-19, but lower oil prices “could prove a favorable environment once the impact of the virus has passed later this year. The oil-price fall also boosts market uncertainty — and obviously today’s events demonstrate there’s a lot of fear about already,” said Shamik Dhar, chief economist at BNY Mellon Investment Management.
Italy, meanwhile, announced a sweeping quarantine for its northern regions. The country’s FTSE MIB index (BORSA:IT:I945) slumped nearly 10%.
“The markets are looking at what is happening in Italy as a sign of what may be coming elsewhere in Europe, as the virus continues to spread,” said Ricardo Evangelista, a senior analyst at the brokerage ActivTrades.