Oil prices and regional stock markets are bracing themselves for further volatility after a ruinous week, with the anticipation of Iran’s imminent return to the international oil market following the lifting of sanctions.
Brent crude futures fell below $30 per barrel for the first time since April 2004 on Thursday morning, ahead of the publication of a report on Friday from the International Atomic Energy Agency, which is expected to confirm Iran’s compliance with a deal struck on its nuclear programme in July.
Iran’s compliance with the deal would pave the way for sanctions on the country’s oil exports to be lifted by Monday.
However, Iran’s return to the international oil market would not necessarily prompt further pressure on crude oil prices, with much of the impact already priced in, according to Thomas Pugh, a commodities economist with Capital Economics in London.
“We’ve seen a series of moves downwards as the various stages of the deal have been announced,” he said.
“There may be further downward pressure but it depends on how much Iran would start bringing to the market. There’d be a large impact if they started shipping a million barrels a day, but the consensus is for more a trickle, so the initial impact is likely to be limited.”
Brent futures subsequently recovered to around $30.80 per barrel late on Thursday afternoon, but this was not enough to prevent a further equity sell-off around the world.
Germany’s Dax and France’s Cac 40 were both down about 2.2 per cent in afternoon trading, while the S&P 500 opened 0.3 per cent higher.
The impact of the oil price drop was particularly sharp in the Arabian Gulf, with Saudi Arabia’s Tadawul All Share Index ending down 3.31 per cent at 5,838.13, its lowest finish since March 2011.
Reuters quotes traders as saying margin calls added to the pressure, especially in smaller-capital stocks.
The Tadawul has lost 15.5 per cent of its value since the start of the year, and nearly half of its value since oil prices began their slide in late 2014.
Dubai’s headline index fell 3.64 per cent to 2,815.45, while Abu Dhabi shares closed off 1.62 per cent at 3,955.10, capping their worst week since August.
The region’s bourses are unlikely to enjoy any respite even if the price of oil stabilises, said Muhammad Shabbir, the head of equities at Rasmala Investment Bank in Dubai.
“Governments in the region have started their adjustments [to the new oil realities] very late; what they’re doing now they should have done last year, and all the market participants predict there’s much more to come,” he said.
“The pressure on markets will continue for at least another couple of months as we wait and see how Iran’s return will impact oil markets, and how far behind governments are behind the curve in their spending plans.”
Arabtec Holding led losses in Dubai , ending down 9.45 per cent at Dh1.15. Market bellwether Emaar Properties trailed close behind, closing down 5.76 per cent at Dh4.58.
“Foreigners are dumping stocks in the region,” Ahmed Shehada, the Dubai-based executive director for advisory and institutions at NBAD Securities, told Bloomberg. “Oil has been leading the free fall, China’s been adding to the selling pressure and we can’t dismiss the geopolitical tension in the region. These three ingredients are a bitter meal.”
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