Oil prices jumped $3 on Monday, with Brent above $110 a barrel, as European Union governments consider whether to impose an oil embargo on Russia.
Most stock markets rallied last week in anticipation of a possible peace deal between Russia and Ukraine. But that didn’t stop oil prices from taking off on Monday.
Indeed, prices rose ahead of this week’s talks between European Union governments and US President Joe Biden, who will meet with his NATO allies on Thursday and travel to Poland on Friday for a series of summits aimed at toughening the West’s response to Moscow. Until the conflict subsides, the focus returns to the market’s ability to replace Russian barrels hit by sanctions.
The latest report from the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, showed that some producers are still not meeting their agreed supply quotas. The two OPEC countries capable of instantly increasing production, Saudi Arabia and the United Arab Emirates, have so far resisted calls from major consuming countries to increase production more quickly to help bring down oil prices.
US energy companies are also struggling to keep the number of oil rigs active, despite high prices : Brent crude was quoted $3.32 higher at $111.25, while US crude rose $3.36 to $108.06 a barrel.
What about other raw materials ?
Long oil and commodities were the most crowded trades and vulnerable to a pullback. Trade was slow with Japan on holiday, leaving S&P 500 stock futures down 0.3% and Nasdaq futures down 0.4%. EUROSTOXX 50 futures fell 0.3% and FTSE futures were flat. The broadest MSCI index of Asia-Pacific equities outside Japan fell 0.2%.
The war in Ukraine is also impacting gas exports, particularly in Europe : “Europe is most exposed to lower supply and higher prices for gas and agricultural imports from Russia and Ukraine. “A fall in the Eurozone PMI into contractionary territory could push EUR/USD back closer to its wartime low of $1.0806” according to Joseph Capurso, head of international economics at CBA.
In commodity markets, gold failed to benefit from safe-haven flows or inflationary concerns, losing more than 3% last week. It was last up 0.3% at $1,927 an ounce.
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