Oil prices soared to $139 and shares sank in frantic trading on Monday amid talks of a U.S. and European ban on Russian product
Further fuelling the rise is the delay in Iranian talks.
The euro extended its slide, hitting parity against the safe-haven Swiss franc, and commodities of all stripes were on the rise as the Russian-Ukraine conflict showed no sign of cooling.
Russia calls the campaign it launched on Feb. 24 a “special military operation”, saying it has no plans to occupy Ukraine.
Having surged 18% in wild early action, Brent was last quoted $9.95 higher at $128.06, while U.S. crude rose $8.35 to $124.03.
That jump will act as a tax on consumers and the potential blow to global economic growth saw S&P 500 stock futures drop 1.3%, while Nasdaq futures shed 1.7%. U.S. 10-year bond yields also dropped to their lowest since early January.
EUROSTOXX 50 futures dived 3.0% and FTSE futures 2.7%.
Japan’s Nikkei (.N225) sank 3.4% to a 15-month low, while MSCI’s broadest index of Asia-Pacific shares outside Japan lost 2.4%. Chinese blue chips (.CSI300) shed 2.3% amid a sea of red across Asian markets.
Having climbed 21% last week, Brent crude was further energised by the risk of a ban of Russian oil by the United States and Europe. read more
“If the West cuts off most of Russia’s energy exports it would be a major shock to global markets,” said BofA chief economist Ethan Harris.
He estimates the loss of Russia’s 5 million barrels could see oil prices double to $200 a barrel and lower economic growth globally.
And it is not just oil, with commodity prices having their strongest start to any year since 1915, says BofA. Among the many movers last week, nickel rose 19%, aluminium 15%, zinc 12%, and copper 8%, while wheat futures surged 60% and corn 15%.
That will only add to the global inflationary pulse with U.S. consumer price data this week expected to show annual growth at a stratospheric 7.9%, and the core measure at 6.4%.
All of which complicates the policy picture for the European Central Bank when it meets this week. read more
“Given the potential for stagflation is very real, the ECB is likely to maintain maximum flexibility with its asset purchase programme at 20 billion euros through Q2 and potentially beyond, thus effectively pushing out the timing of rate hikes,” said Tapas Strickland, an economist at NAB.
“Higher CPI forecasts, though, mean rate hikes will be needed on the horizon.”The United States has confirmed that it is in talks with European allies to potentially sanction Russian crude oil in response to Moscow’s ongoing aggression in Ukraine, sending oil prices briefly above $130.
US Secretary of State Antony Blinken noted on Sunday during the NBC talk show Meet the Press on Sunday, “We are now in very active discussions with our European partners about banning the import of Russian oil to our countries, while of course at the same time maintaining a steady global supply of oil.”
The latest considerations follow a stream of sanctions that have already had a significant impact on the Russian economy but have not yet been able to halt Putin’s advance into Ukraine.
European Commission President Ursula von Der Leyen has yet not fully supported the idea, though she has expressed that one of their primary goals in the sanctions that have been levied thus far is to cut Putin’s funding streams.
The European Commission President noted on CNN, “The goal is to isolate Russia and to make it impossible for Putin to finance his wars,” adding “For us, there is a strong strategy now to say we have to get rid of the dependency of fossil fuels from Russia.”
The move, if agreed upon, has long been considered the “nuclear option” as a ban on Russian oil could weigh on global supply in an already tight market.
Bank of America analysts noted that if Russia’s oil is cut off, the market could face a 5 million barrel shortfall which could push oil prices to $200 per barrel.
The situation is compacted by stalling talks with Iran over a potential new nuclear deal.
Amrita Sen, the co-founder of Energy Aspects, a think tank, explained, “Iran was the only real bearish factor hanging over the market but if now the Iranian deal gets delayed, we could get to tank bottoms a lot quicker especially if Russian barrels remain off the market for long.”
