The Tadawul All-Share Index (TASI) fell 1.1 percent in its biggest drop since Dec. 13. The index closed at 6,420.89 points.

The US benchmark gas price fell to $2.60, its lowest level since September 2009, with a US shale gas boom and the prospect of similar developments in China helping to bring it down sharply. 

Saudi petrochemical producers are supplied with subsidized gas at fixed prices, whereas rival producers in other regions typically pay the market rate, so a fall in global gas prices reduces Saudi producers' competitive advantage.  

"Earnings are below expectations so far in banks and petrochemical companies and there are concerns about the future," said Mohammad Omran, a Saudi-based independent financial analyst. 

"The drop in the gas price is continuing mainly because of shale gas. Major (international) producers will have a big advantage and they will reduce gaps with the petrochemical producers in the region — this is negative for the industry." 

Saudi Basic Industries Corp. (SABIC) dipped 0.5 percent.  

Yanbu National Petrochemical Company (Yansab) slipped 0.7 percent to SR42.7 after reporting a fourth-quarter net profit of SR664.8 million ($177.3 million), at an increase of 20 percent from the year earlier period.  

"Lower petrochemical prices in the fourth quarter of 2011 impacted top to bottom profitability... we are encouraged by expected quarter-on-quarter margin improvement given pricing pressure," Riyad Capital said in a research note, recommending a “buy” rating with a target price of SR52.50.

In the UAE, Dubai Financial Market, the only listed Gulf Arab bourse, plunged to an all-time low, falling 10 percent.   

It dragged down the index, which closed 1 percent lower at a new seven-and-a-half year low. 

"Volumes in Dubai are not going to pick up for the next 12 to 24 months and anything that has fundamental weakness could get pummeled," said Amer Khan, fund manager at Shuaa Asset Management. 

"Once Abu Dhabi starts falling and people punish companies that have fundamental weakness, it causes a spillover in Dubai." 

Abu Dhabi-listed Dana Gas dropped to an all-time low as investors cut positions on worries the energy firm will face problems repaying an upcoming bond. 

Dana fell 8.1 percent, down for a fourth straight session. It has fallen 39 percent in the past two months.  

Abu Dhabi's benchmark dropped 0.8 percent to its lowest close since March 2009. 

Aldar Properties and Sorouh Real Estate fell 2.6 and 2.9 percent respectively. 

Elsewhere, Oman's benchmark slipped 0.2 percent, while Kuwait and Qatar ended near-flat.