Investors take cover as oil dips below $29 while Russia’s prime minister warns of “serious risks” to the country’s budget.
The FTSE 100 Index has closed at its lowest level since November 2012 as global markets took a renewed battering amid the slide in the oil price.
London’s leading share index saw £29bn wiped off the value of its constituent companies as it fell by 114 points, or 1.9%.
It came as the price of a barrel of Brent crude slipped further, dipping below $29 as it tested new lows not seen since February 2004.
The oil price has been under pressure amid a glut of supply which will soon be added to when Iran starts pumping oil into the market again when sanctions are lifted.
But demand is failing to keep pace, with China facing a slowdown that is sending shockwaves through emerging market economies and hitting oil prices as well as other commodities.
That was reflected in the latest stock falls in London, led by miners Anglo American, off 11%, and Glencore, down nearly 7%.
BHP Billiton dropped 6% after it announced a $7.2bn (£5bn) writedown on the value of its US shale gas assets.
Oil giants BP and Royal Dutch Shell were both down by about 3%.
European markets were also hit by the rout, with Germany’s Dax shedding 2.5% and France’s Cac 40 down by 2.4%.
Investor nerves worsened during the session when US data showed a 0.1% dip in retail sales during the crucial December month and falling factory prices.
Meanwhile Wall Street lenders’ quarterly earnings results showed they were setting aside hundreds of millions of dollars to cover the cost of loans to the oil sector going bad.
The S&P 500 in New York closed more than 2% lower.
Russia’s main stock market was down 4% – with the ruble trading at one-year lows against the dollar following a warning by the country’s prime minister about the effects of the extended oil weakness.
Dmitry Medvedev said low oil price revenues posed “serious risks” to the country’s 2016 budget, which was based on projections that prices would stand at $50 a barrel.
He called for submissions on spending cuts as Brent crude reached its lowest level since February 2004 on Friday – down more than 4% – taking it to $29.43 a barrel on Friday morning.
Russia has been among the countries hardest hit by the price collapse, which began in 2014.
It has coincided with western sanctions – imposed over the annexation of Crimea – forcing Russia to pump record volumes of oil to accumulate as much money as possible as it handles the effects of a recession and growing unemployment.
Its production effort has been one factor behind the global over-supply.
Earlier on Friday Gazprom – the country’s biggest energy company 50% owned by the state – announced a loss for the third quarter of 2015 despite rising sales.
It said prices were down almost 30% .
The Russian economy is dependent on oil revenues.
President Vladimir Putin admitted last year that Russia’s efforts to rebalance its economy had failed to materialise.
The recession is already the longest since he first took office in 1999 but his popularity has remained high thanks largely to widespread public support for his actions in Ukraine.
It is reported that the Russian government is set to revise its economic forecast for this year to a contraction of 0.8% – an increase from 0.7% previously expected.
Source: SKY NEWS