Shockwaves rippled through the global oil industry on Monday, as crude prices plummeted on price war fears.
Oil prices fell by as much as 30% after Saudi Arabia slashed its export oil prices and moved towards a price war with Russia.
Major oil companies saw steep share price declines and analysts warned US shale producers could face a credit crunches when markets open in North America later today. The currencies of major oil exporting nations also came under pressure.
“There are no winners only the less badly hurt,” UBS analyst Jon Rigby wrote in a note on Monday.
Neil Wilson, chief market analyst at Markets.com, said BP and Shell’s dividends could be threatened.
“The last time we had an oil shock like this in 2014 the majors cut costs aggressively and divested assets,” Wilson said.
“There will be serious damage done this time, and it will last. You’ve got to seriously question whether BP and Shell will be able maintain dividends when crude is trading at $30.”
Michael Hewson, chief market analyst at CMC Markets, said: “The slide in BP’s share price is a particular concern, given their breakeven price is just under $50 a barrel.”
Shares in Saudi Aramco (2222.SR), the state oil company, fell by 9% in Riyadh to drop below the price shares were offered at in December’s stock market listing.
“Falling below IPO price is a symbolic blow to plans to list Aramco shares on foreign exchanges as well as the Saudi government’s wider economic reform agenda,” analysts at S&P Global Platts, a commodity pricing agency, wrote.
The currencies of major oil exporting nations also came under pressure. The Norwegian Krone was down 3.3% against the pound (NOKGBP=X), the Russia Ruble was down 7.8% against the pound (RUBGBP=X), and the Mexican Peso was down 5.9% against the pound (MXNGBP=X).
“Oil is a significant driver of GDP in Mexico, Norway, Canada, Russia, Brazil and Colombia and of course, the US is the world's biggest oil producer in absolute terms now,” Kit Jukes, a macro strategist at Societe Generale, wrote in a note to clients.
“None of those countries' currencies is going to have a good day, though the dollar does still derive support from its reserve currency status.”
Elsewhere, Deutsche Bank raised concerns about the US high-yield bond market, where energy companies make up 14% of the market.
“One area that will be under severe scrutiny given the oil move is credit,” Deutsche Bank strategist Jim Reid and team wrote in a note to clients on Monday.
“The timing of this is very bad, as fears were building in credit already on Friday. Once investors have doubts about the economy and/or see outflows then selling can overwhelm the market.
“The danger of the current situation is you’re starting to risk seeing the early stages of such a move. If this crisis is prolonged it’s likely that credit will see big liquidity air pockets that will spook other asset classes and risk becoming a vicious circle.”