Amid fears of an oil trade war and the coronavirus, trading has fallen to its lowest level since after the Brexit referendum
The FTSE 100 index of shares tumbled 8% overnight over fears of an oil price war between Russia and Saudi Arabia.
Saudi Arabia has increased production of oil, drastically cutting its export price.
It comes after Russia’s refusal to join OPEC in agreeing to cut production and stabilise prices in response to the coronavirus outbreak.
The move caused oil prices to crash to their lowest since the start of the Gulf War in 1991, falling nearly 30% to $31 a barrel.
Billions have been wiped off the FTSE 100 index, with shares plunging 8% to fall below 6,000 points, the lowest level since the Brexit referendum result in 2016.
The fall in the markets also reflects growing fears over the impact of the coronavirus on global economic growth.
In the European market, the German DAX was down 7.36% with the French CAC dropping 6.38%.
Asian markets also slumped, with the Nikkei 225 index falling 5.07%, Hong Kong’s Hang Seng down 4.23%, while China’s Shanghai Composite index declined 3.01%.
The coronavirus has infected more than 108,000 people so far. Cases continue to rise around the world and Italy has put 16 million people on lockdown.
Michael Hewson, chief markets analyst at CMC Markets UK, says: “This seems a high stakes gamble given how high the Saudi breakeven price is.
“The rationale must surely be that in sending oil prices to their lowest levels since 2016, and their biggest one day fall since the days of the 1991 Gulf War, the action might prompt the Russians back to the table to agree a production cut.”
What does this mean for your pension?
It is easy to think that the fall in the markets won’t affect you if you have not got any money invested.
However, millions of people who have pensions will typically have 60-70% of their investment in the stockmarket.
While the performance of the market will directly affect their pension pots, experts advise savers to remain calm as they are long-term investments
Anthony Morrow, chief executive of OpenMoney, says: “If you hold sizeable investments or are concerned about the impact on your pension income, we’d urge you not to panic.
“Your pension, and your investments should always been seen as long-term commitments and drops like today’s, while unsettling, shouldn’t lead you to panic about the future."
It is important to note that by withdrawing money from your pension when the markets are at lower levels could compound your losses and reduce your savings in retirement.
Good news for consumers
A fall in the wholesale price of oil could be good news for consumers if retailers decide to pass the cuts on.
Luke Bosdet, AA fuel price spokesperson, says it could knock up to 7p to 8p a litre off the price of petrol.
He says: “The spat between oil producers echoes the oil price crash in 2015, when £1-a-litre fuel returned to UK petrol stations.
“There is still a long way to go and the chances of another major collapse in forecourt prices will depend on how long the oil price plunge continues and how quickly UK retailers take to pass on savings.”
Consumers could also see a knock-on effect of reduced household gas and electricity prices if this situation continues, says Will Owen, energy expert at Uswitch.
He says any impact will take time to work its way through to bills, especially for consumers who are on fixed-rate deals.
Owen says: “People will start to use less energy anyway as we head towards warmer temperatures and lighter evenings through the spring, so households may not notice any major differences until next winter.
“Even then, the oil price drop will only work its way through the system if it’s prolonged and starts to depress the wholesale prices which energy suppliers pay for gas and electricity on the open market.
“As some suppliers’ gas contracts are linked to oil prices, and we generate almost 40% of our electricity from gas, it won’t be until the gas price starts to be affected that we’ll see a further impact on electricity costs.
“Likewise, given that the larger energy companies who supply most homes in Britain tend to buy several years in advance, there’s no guarantee this will lead to cheaper bills just yet.”