Oil prices plunged nearly 10 per cent following a breakdown in talks between Opec and Russia, leading to the biggest fissure in the alliance responsible for balancing global oil markets as equity markets also continued to slide.
Brent, the most widely traded crude benchmark, fell 9.44 per cent to settle at $45.27 per barrel on Friday, while West Texas Intermediate, which tracks North American crude grades slid 10.07 per cent to close at $41.28 per barrel.
US stocks also fell, with the S&P 500 losing 3.4 per cent, while the Dow Jones Industrial Average lost 3.6 per cent of its value and the Nasdaq Composite declined 3.1 per cent. The rout came even as the US economy added 273,000 jobs prior to the widespread contagion of the Covid-19 virus, which has so far infected more than 100,000 and claimed more than 3,400 lives globally.
Oil markets suffered as Opec+, the alliance led by top producers Saudi Arabia and Russia, failed to agree to further correction to stop a decline in prices amid a slowdown in demand from the impact of the virus outbreak on global supply chains and trade.
Investors rushed to safe-haven assets with gold posting its biggest weekly gain in four years. Gold futures for April settled at $1,675 per ounce on Friday. The commodity could breach $2,000 on the basis of further monetary policy easing and inflows to safe-haven assets, according to Citigroup.
The break-up of the Opec+ meeting was a " psychological blow" for the markets, said Ann-Louise Hittle, vice president of macro oils, at Wood Mackenzie. “And the market is now facing the spectre of unrestrained production once the current Opec+ agreement expires in March."
Russia, which was reticent about supporting an early recommendation by the alliance's joint technical committee last month to curb an additional 600,000 barrels per day from the markets until the second quarter, rejected the Saudi proposal to hold back an extra 1.5 million bpd at the meeting last week.
The group, which forged their alliance in Algiers in 2016, has been cutting back production of 1.7 million bpd since the start of January, with the pact valid until the end of the first quarter. The Saudi-Russian alliance, which began as a counterweight to the rising tide of US shale, has experienced few hiccups until its recent meeting.
Russia's budget is far more resilient to lower oil prices than its allies, according to analysts, with the Kremlin perhaps considering the latest gathering as an opportune moment to squeeze out its shale competitors by allowing prices to fall even further.
"Russia chose the perfect timing to decide to end the production cut agreement with Opec, as currently prices are very close to the shale break-even prices and a lack of Opec+ agreement will have even further downward pressure on the prices and ultimately on shale production," said Sara Vakhshouri of SVB Energy.
The collapse of the deal and the subsequent squeeze on prices are likely to affect the ability of shale producers to secure financing from the banks.
"Many shale producers are highly exposed to the current low oil prices," Ms Vakhshouri said.
The breakdown in talks came amid a proposal by Saudi Arabia to split the deepening of the cuts with 1 million bpd to be shouldered by Opec and 500,000 bpd to be curbed by Russia. Moscow's reservation to further curbs transformed into a full-scale opposition to the deal.
"This breakup means the current Opec+ oil production cut deal will end at the end of this month, meaning Opec+ countries will be able to produce as much as they want from April onwards," said Giovanni Staunovo, commodity analyst at UBS.
The Swiss bank has kept its forecasts unchanged as it awaits more clarity from ongoing informal talks between Opec and Russia.
"If Opec+ are no longer willing to balance the oil market as they have done since 2016, the oil price will dictate supply and demand adjustments to balance the oil market," said Mr Staunovo.