US pre-open: Fed to increase repo operations amid oil price crash

As of 1152 GMT, West Texas Intermediate crude oil futures for prompt month delivery were 27.8% lower at $32.29 a barrel, having hit the $30.0 a barrel mark during Asian trading hours and with analysts at Goldman Sachs and Citi openly talking of a drop into the $20s.

That led to a further rise in Bloomberg's gauge of financial stress, which over the previous 16 days had increased by more than in the 82-day move seen during the last market shake-up in December 2017.

With falling energy quotes it was expected that it might become much harder for increasingly hard-pressed shale oil companies in particular to tap corporate debt markets.

In response to the sudden tightening in credit conditions, the US central bank, the Federal Reserve, moved rapidly to add liquidity, increasing its daily repurchase operations from $100.0bn to $150.0bn.

Despite that, futures on the mini S&P 500 contract were falling by 145.0 points to 2,819.0, thus pointing to a near 5% slide for that benchmark gauge at the opening bell.

Similarly-dated contracts for the Dow Jones Industrials and Nasdaq-100 were falling by 1,255 and 410 points, respectively.

In parallel, the yield on the benchmark 10-year US Treasury note was careening 33 basis points lower to 0.43%.

At the weekend, Saudi Arabia slashed its official selling price after Russia announced that it would not contribute more to any oil output curbs alongside other Organisation of Petroleum Exporting Countries member states and Kazhakstan.

And according to sources cited by Bloomberg, Saudi said it might ramp-up oil production as high as 12.0m barrels a day, in a bid to maintain if not increase its market share.

"The gamble that Russia seems to be taking is that a crash in prices will force many shale producers out of business," said analysts at Rabobank.

"In the absence of other options Saudi Arabia, with its low oil production costs, has simply been forced to join in with this strategy. US shale producers are reported to account for more than 11% of the US high-yield bond market, so a struggling sector could have broader ramifications (perhaps providing an offset is that many shale producers will have hedging agreements in place to give them some protection against an oil price decline over the shorter term)."

According to the latest OPEC monthly market report, in January Saudi was producing at a rate of 9.73m, versus the Russian Federation's 11.49m b/d and a combined 14.37m b/d by countries from the Former Soviet Union.

No major economic reports were scheduled to be published in the States on Monday.