Gulf markets fall on oil slump, Saudi riyal down in forwards market

DUBAI (Reuters) - Gulf debt and equity markets fell on Tuesday and the Saudi currency dropped in the forward market, after U.S. crude oil futures collapsed below $0 on a coronavirus-induced supply glut.

The Saudi stock index (TASI) dropped 1.5% at the market open with oil company Aramco (SE:2222) down 1.7%.

Shares in the Dubai market (DFMGI) fell 1.4% while the Abu Dhabi index (ADI) lost 0.5% and the Kuwaiti premier index <.BKP> declined 2%.

The cost of insuring against a potential debt default by Saudi Arabia -- the world's biggest oil exporter -- increased slightly, to 168 basis points from 166 on Monday, according to data from IHS Markit. It is up 13 bps in the past week.

U.S. dollar-denominated bonds issued by Saudi Arabia, Oman, and Bahrain shed between 0.5 cents and 2 cents while Aramco's paper due in 2049 was down almost 1 cent, according to Refinitiv data.

"Despite the OPEC deal to cut over 10% of global oil production, the price of oil keeps falling. While yesterday's negative WTI futures price might have been a one-off glitch, it does confirm there is trouble ahead," said Artur Baluszynski, head of research at investment management firm Henderson Rowe.

U.S. crude oil futures fell below $0 on Monday for the first time in history as demand cratered. Brent crude, the international benchmark, also slumped, though that contract was nowhere near as weak.

Lower oil prices, combined with other economic pressures caused by the coronavirus outbreak, are hurting the budgets of Gulf countries that rely heavily on crude exports and have strained their currencies.

According to Mohammed Ali Yasin, chief strategy officer at Al Dhabi Capital in Abu Dhabi, most of the market turmoil was sentiment-based.

"People are not understanding why this happened so fast ... Is this (the price) at which governments have to sell oil? The answer is no, but it will take them some time to understand."

The Saudi riyal fell in the forward market against the dollar. It is pegged at 3.75 to the U.S. currency in the spot market, so banks often use the forward market to hedge against risks.

Nine-month dollar/riyal forwards -- trades scheduled to take place in nine months -- were at 120 points, up from Friday's close of 60 points -- their highest level since November 2017, Refinitiv data showed.

One-year dollar/riyal forwards rose to 210 points, flirting with a near 2-1/2 year high of 211 hit on Monday.