Premarket stocks: Oil prices fall as economies signal


Crude futures are falling again, sinking nearly 3%. After nearing $140 a barrel in early March and most recently reaching $120 two weeks ago, Brent futures have fallen into a nearly straight line and are now sitting only a hair above $100. US oil has not smelled above $100 a barrel for almost a week.

What happened? The global economy is holding up to higher prices, and investors are getting a case of butterflies.

Not helping matters: China’s consumer prices rose 1.5% in March, led by (what else) fuel and food prices.

“The spurt in Covid cases … and the rise in oil prices amid the Russia-Ukraine conflict dimmed the overall growth outlook for China,” said Gargi Rao, Economic Research Analyst at GlobalData.

Meanwhile, the risk of recession in other major economies is increasing. The UK economy grew just 0.1% in February, according to the Office for National Statistics, as construction and construction turned opposites. This fell short of economists’ expectations and had a worrying result: a return to normal life after O’Micron was expected to boost the UK economy. Now, the crisis of war and the rising cost of living in Ukraine threaten to send it in the wrong direction.

Steady economic growth and rising inflation can be a toxic combination, affecting the ability of central banks to keep prices under control. If they raise rates too high or too fast, policymakers run the risk of plunging the economy into recession.

What’s more: So many bad economic vibes are weighing on the oil. But this is not the only reason for the fall in prices.

Western countries have committed to offloading an unprecedented 240 million barrels of emergency oil to the market in the coming months. The Biden administration is releasing one million barrels a day from the US Strategic Petroleum Reserve for the next six months. Other countries are contributing another 60 million barrels from their reserves as part of a drawdown coordinated by the Paris-based International Energy Agency.

The IEA said Russia could be forced to cut its production by 3 million barrels per day starting this month, as it struggles to find buyers after invading Ukraine.

“The release of strategic government oil reserves will ease some of the market tightness in the coming months, reducing the need to increase oil prices,” UBS strategist Giovanni Stanovo said in a note to investors on Monday morning. , “Some of the tightness of the market due to the self-acceptance of Russian crude buyers – either for fear of future sanctions or for reputational reasons – should ease.”

Still, the market is fairly balanced, and OPEC+ countries have so far refused to pump more oil. US oil companies have been reluctant to open spigots again, recalling the financial losses they suffered during the price crash in the early days of the pandemic.

UBS lowered its near-term oil forecast by $10 a barrel, but it still predicts that Brent will return to $115 a barrel by June.

In other words: high oil prices are here to stay. Until the bottom falls out of the economy.

Rising prices are putting countries on edge

Remember the 2011 Arab Spring? The people of North Africa and the Middle East fought for freedom and social justice. But they also took to the streets because food prices were rising.

Inflation is back, and so is social unrest. Over the past week, protests have erupted around the world, from Sri Lanka and Pakistan to Peru. Economists have long worried that price hikes in at-risk countries could lead to violence.

Pakistan’s parliament on Sunday ousted Prime Minister Imran Khan from office after the little support he had left was hit by double-digit inflation. At least six people have died in recent anti-government protests in Peru due to rising fuel prices.

The protests against the Arab Spring caused a sharp rise in food prices. The Food Price Index of the Food and Agriculture Organization of the United Nations reached a record 131.9 in 2011. The index reached 159.3 in March, up about 13% from February.

The war in Ukraine and sanctions on Russia are not helping. Ukraine is a major exporter of wheat, corn and vegetable oils, and prices for those goods have risen over the past month as Russia’s aggression has blocked that supply from leaving the country.

This is particularly hurting countries that are already grappling with issues of food insecurity and hunger. According to Gilbert Hongbo, head of the International Fund for Agricultural Development, forty percent of Ukraine’s wheat and corn exports go to the Middle East and Africa.

Wall Street just can’t leave Russia

You would think that up to this point Russia would be a taboo for traders. But Russian bonds continue to trade furiously, my colleague Nicole Goodkind reports.

Russian bonds have quickly become junk-rated after the country invaded Ukraine and became a global pariah. Yet speculators have become increasingly concerned with their bargain-basement prices and high yields, according to Philip M. Nichols, Russian expert and professor of social responsibility in business and the Wharton School of the University of Pennsylvania.

“There are a lot of speculators who are buying these bonds that have been seriously downgraded,” Nichols said.

Buying Russian sovereign debt remains legal, Nichols said, if excessively risky. There is no guarantee that Russia will pay back its bondholders, and the cost of insuring Russian bonds is astronomically high.

JUST IN: The S&P slapped Russia with a “selective default” rating on Friday.

Yet those risks haven’t deterred some Wall Street investors — nor has the fact that Russia is committing atrocities in Ukraine. And even if investors want to get out of the risky bet on Russia, they still have to sell to someone who does.

Who is facilitating those trades? American financial institutions such as JPMorgan Chase.

“This is Wall Street,” said Cathy Jones, chief fixed income strategist at the Schwab Center for Financial Research. “It doesn’t surprise me that they saw some sort of loophole they could have used to make money.”

Representatives for JPMorgan say they are acting as middlemen, simply wanting to assist customers.

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The US Consumer Price Index, a closely watched inflation report, will be released Tuesday morning.

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