More than US$15 billion (Dh55.09bn) was wiped off the value of Saudi Arabian stocks yesterday after a sell-off on oil markets pushed European crude prices below $100 per barrel for the first time in two years.
The Saudi Tadawul All-Share Index fell 4.2 per cent to 6,681.18, the biggest intraday decline on the kingdom's markets since August.
"What's pushing the markets down is absolutely the oil price," said Hisham Tuffaha, the head of asset management at Bakheet Investment Group as markets sunk during the trading session.
"We've had an impact from the news from Europe but the market hasn't reacted as much as what we're seeing today."
The sell-off leaves UAE markets primed for a bad start to the week in trading today, after a slump in oil prices on Friday.
Brent crude futures fell $3.27 to $99.76 per barrel, reaching a two-year low for the European benchmark as the $100 per barrel mark was breached for the first time since February last year.
And as a glut of crude hits world markets as oil producing nations up their output, oil prices could have further to fall, said Ehsan Ul Haq, a senior market analyst at KBC Energy Economics.
"Saudi Arabia has increased its supply to the highest level in many years," he said. "And there's more and more supply coming from other Opec countries such as Iraq and other Gulf countries."
The growing importance of shale gas to the US had left it less dependent on crude imports from world markets, he added.
In the meantime, a build-up of oil inventories in the US has left markets oversupplied, analysts from Russia's VTB Capital wrote in a research report released on Friday.
"The weekly US Energy Information Administration data recorded another above expectations build in crude inventory as imports increased … despite inventory levels already being the highest since 1990," the report said.
Brent crude futures have now shed $28.34 since their highs at the end of February to reach $99.76 per barrel. During the same period, Nymex crude futures fell $26.26 to $83.23 per barrel.
Oil markets were also put under further pressure by weak economic data from the US and China, respectively the world's two biggest economies, which pointed to a faster than anticipated slowdown of growth.
The US added just 69,000 jobs in May as the unemployment rate in the world's largest economy held steady at 8.2 per cent, according to the labour statistics bureau. The reading was less than half that forecast by economists.
In China, the Purchasing Managers' Index fell to 50.4 points in May, the slowest reading since December.
An indicator of the economic health of an economy, a reading above 50 signals expansion in the manufacturing sector, while a reading below 50 indicates contraction.
The sell-off will concentrate minds ahead of a meeting of Opec ministers in Vienna later this month, Mr Ul Haq said.
Oil-producing states in the Gulf have sufficient room to deal with a fall of the price of oil below $100 per barrel and most would have little difficulty as long as oil remains above $80 per barrel, he added.
"If the prices go towards $80 per barrel, even Saudi Arabia will start to think about reducing production," he said. "For the Middle East, Iran is probably most likely to be hit by low oil prices. Its exports are going down and prices are going down too."
But with markets in free fall, traders in Saudi Arabia are now hoping a fresh bout of stimulus from the United States, in the form of quantitative easing, will be provided to jump-start growth, Mr Tuffaha added.
"Everyone now is aware that we don't have an alternative to quantitative easing," he said.
"That's the only solution we have."
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