Oil prices plummeted to $29 a barrel Friday on the likely resumption soon of Iranian oil exports into an already flooded market as international sanctions against Iran are lifted, dragging equity indices around the world sharply lower.
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Unsettled investors snapped up gold and other safe-haven assets amid fears of a global economic slowdown, coupled with concerns about a potential credit default as lower commodity prices make payments by creditors in emerging markets difficult.
Major stock indices in Europe closed down more than 2 percent, while Wall Street stock indexes tumbled between 2 and 3 percent as global crude benchmark Brent lost 6 percent to below $29 a barrel at one point, capping a decline of almost 14 percent for the week.
"We're seeing the final capitulation," said Tina Byles Williams, chief investment officer at FIS Group in Philadelphia, which oversees about $4.4 billion in assets under management.
Williams said crude prices could hit $20 a barrel, a price analysts at Goldman Sachs have said may be necessary to accelerate a slow-down in drilling and return global oil inventories to a more even supply-demand balance.
The risk is that a creditor faced with declining revenues and higher payment costs because of a stronger dollar on its dollar-denominated debt sparks a default, Williams said.
"If that dollar-denominated debt went to finance commodity projects, then that's obviously quite a toxic brew," she said.
Yields on the benchmark 10-year U.S. Treasury note were poised to fall below 2 percent and gold rose as retreating oil prices and equity markets underpinned demand for assets perceived as safer.
The December futures contract on the federal funds rate surged to its highest since October, implying the Federal Reserve will raise rates only one more time this year.
The Australian, New Zealand and Canadian dollars all sank against the U.S. dollar on the back of another slide in Chinese stock markets and the slide in oil. But the dollar fell against both the euro and yen.
World stock markets were set for a third week of losses. European shares fell to their lowest since December 2014, hit by losses in commodity-related stocks after BHP Billiton announced a $7.2 billion write-down on its U.S. shale assets.
BHP shed 6.4 percent, one of the biggest decliners on the pan-European FTSEurofirst 300 index, which closed down 2.79 percent. MSCI's all-country world stock index fell 2.3 percent to levels last seen in July 2013.
On Wall Street, the selloff was broad, with all 10 major S&P 500 sectors in the red and all 30 components of the Dow industrials lower. A 3.8 percent slide in the beaten-down energy sector led the decline among sectors on the benchmark S&P 500.
"Investors are scared to death," said Phil Orlando, chief equity strategist at Federated Investors in New York.
Topping investor concerns is a possible hard landing in world No. 2 economy China that drags the rest of the world into recession, Orlando said.
Other concerns include the dollar's strength, the pace of rate increases planned this year by the Federal Reserve and a manufacturing recession, besides plunging oil prices, he said.
"It's not giving anyone any confidence because to me at least it resembles a bad reality show on television," he said.
The Dow Jones industrial average fell 459.01 points, or 2.8 percent, to 15,920.04. The S&P 500 slid 53.11 points, or 2.76 percent, to 1,868.73 and the Nasdaq Composite lost 162.52 points, or 3.52 percent, to 4,452.48.
Crude prices tumbled on a further decline in the Chinese stock market and as the prospect of an imminent rise in Iran's crude exports deepened fears of a prolonged supply glut.
Both of China's major stock indexes shed more than 3 percent, raising questions about Beijing's ability to halt a selloff that has now reached 18 percent since the beginning of the year.
U.S. crude futures were down about 6 percent at $29.41 a barrel. The March Brent contract traded almost 6 percent lower at $29.05. Earlier, prices fell to $28.82.
(By Herbert Lash; Additional reporting by Dion Rabouin in New York; Editing by Bernadette Baum)