Oil prices plunge by a third as Saudi-Russian pump war looms

Trading on Wall Street was temporarily halted early Monday as U.S. stocks joined a global rout on crashing oil prices and mounting worries over the coronavirus.

The suspension was triggered after the S&P 500's losses hit seven percent, with trading resuming after 15 minutes.

After two difficult weeks amid rising worries over the virus, markets appeared to enter a new phase of worry early Monday after oil producers failed to reach an agreement on a pact to limit output, sending oil futures crashing.

The virus itself continued to prompt major economic dislocations, as Italy imposed a month-long lockdown on the country's northern region and additional major sporting events were canceled, along with concerts and industry conferences.

The International Monetary Fund called for "substantial" stimulus and international coordination to counteract the economic impact of the spreading coronavirus epidemic, while the New York Federal Reserve Bank announced it will increase its daily injections of cash into financial markets by $50 billion to $150 billion to boost market liquidity.

Oil prices lost as much as a third of their value on Monday in their biggest daily rout since the 1991 Gulf War as Saudi Arabia and Russia signalled they would hike output in a market already awash with crude after their three-year supply pact collapsed.

Despite sliding demand for crude due to the coronavirus, Riyadh made plans to ramp up output in April after Moscow balked at OPEC's proposal last week for a further steep production cut. Saudi Arabia also cut its official crude selling price.

The U.S. benchmark's biggest decline on record was in 1991 when it also fell by a third.

"The timing of this lower price environment should be limited to a few months unless this whole virus impact on global market and consumer confidence triggers the next recession," said Keith Barnett, senior vice president for strategic analysis at ARM Energy in Houston.

DEMAND CONTRACTION

China's efforts to curtail the coronavirus outbreak has disrupted the world's second-largest economy and curtailed shipments to the biggest oil importer. The virus has also spread to other major economies such as Italy and South Korea.

The International Energy Agency said on Monday oil demand was set to contract in 2020 for the first time since 2009. It cut its annual forecast by almost 1 million bpd and that the market would now contract by 90,000 bpd.

Major banks have cut their demand growth forecasts. Morgan Stanley predicted China would have zero demand growth in 2020, while Goldman Sachs sees a contraction of 150,000 bpd in global demand.

Goldman Sachs also cut its forecast for Brent to $30 for the second and third quarters of 2020.

In other markets, the dollar was down sharply against the yen, Asian stock markets sharply lower, and gold rose to its highest since 2013 as investors fled to safe havens.

Chris Weafer, director at Macro-Advisory consultancy, said Russia return to cooperating with OPEC by autumn if prices remained very low as President Vladimir Putin "will be reluctant to run down financial reserves too far to fund an expanding deficit".