The stock values of the UK’s major oil companies plummeted by over £10 billion following reports that Saudi Arabia is likely to move away from its unofficial target of $100 per barrel for oil prices.

Both BP and Shell saw significant drops in their share prices, landing at the bottom of the FTSE 100 index as Brent crude prices fell sharply by 2.5%, nearing $71 a barrel.

Shell’s stock fell by 117p, representing a 4.6% decline, reaching £24.15, while BP dropped by 16½p, or 4.1%, to 383p, despite the FTSE 100 experiencing a largely positive day due to optimism surrounding China’s recovering economy.

The downturn in the oil sector follows indications that Saudi Arabia, the world’s largest oil exporter, is preparing to ramp up oil production, signaling a shift to a period of reduced prices.

Following the pandemic, energy firms reported substantial profits due to skyrocketing oil prices, which soared from $20 per barrel during the peak of COVID-19 in 2020 to nearly $120 during Russia’s invasion of Ukraine in 2022. However, prices have since decreased, with the U.S. boosting its output amid lower demand from China and ongoing regional conflict concerns surrounding the Israel-Hamas situation.

According to the International Monetary Fund, Saudi Arabia requires oil prices to stabilize around $100 per barrel to balance its national budget and finance ambitious multibillion-dollar initiatives led by Crown Prince Mohammed bin Salman aimed at diversifying the economy beyond oil through sectors like tourism, technology, and manufacturing.

Since 2022, Saudi Arabia and other OPEC+ nations have managed their output in a concerted effort to restrict supply and support oil prices. Notably, Saudi Arabia’s production was curtailed by two million barrels per day, accounting for over a third of the total cuts.

However, reports suggest that this agreement is weakening, with Riyadh expected to boost production starting in December with plans to increase output by a total of one million barrels per day by December 2025.

Meanwhile, representatives from Libya’s rival eastern and western regions have reached consensus on appointing a new central bank governor, a crucial move that could address the ongoing turmoil over oil revenue control, which has seen Libya’s oil exports drop from over one million barrels per day to around 400,000.

Experts anticipate that a combination of increased production and seasonal downturns in demand could create a significant oil surplus in the first quarter of 2025, potentially driving prices even lower.

Kim Fustier, the head of European oil and gas research at HSBC, remarked that the recent developments from Saudi Arabia indicate a recognition of prior miscalculations by OPEC+ and a current intent to reclaim market share.

Within Europe’s oil sector, BP has been identified as particularly susceptible to the impacts of declining oil prices, with analysts from RBC Capital Markets warning that BP’s financial leverage remains elevated compared to its competitors due to share buybacks and recent acquisitions.

Despite the significant drop in value for these crucial oil stocks, the FTSE 100 remained relatively stable, buoyed by news of China’s extensive stimulus measures aimed at revitalizing its economy.

The Chinese government announced plans for “necessary fiscal spending” to achieve its economic growth target of 5%, potentially injecting up to a trillion yuan (£110 billion) into major banks.

This development led to gains for Asia-focused companies, with Prudential shares rising by 39½p (6.1%) to 681½p, and Standard Chartered shares climbing by 40½p (5.3%) to 803½p.

The announcement also positively impacted base metal prices, with three-month copper futures on the London Metal Exchange climbing by 0.5% to $9,844.50 per tonne by midday after touching a high of $9,913 earlier.

This surge propelled shares of London-based mining firms, with Anglo American rising by 141½p (6.2%) to £24.39, and Antofagasta increasing by 111p (5.8%) to £20.31. Shares in Glencore, the mining and trading company, added 19½p (4.9%) to 423p.