Daily Management Review

Crude Surges After Russian Oil Ban By The US Making Equities In Asia To Falter


Crude Surges After Russian Oil Ban By The US Making Equities In Asia To Falter
While prices of crude oil rose further on Wednesday, Asian equities sank as investors tried to work out the implications of the intensifying war in Ukraine and a new ban on Russian oil by the United States.
Since Russia's invasion of Ukraine on February 24, the price of a barrel of petroleum has soared skyward, since already being on the rise in January due to supply concerns and anticipation of a growing global economic recovery. Oil is already nearly twice what it was in early December.
On Tuesday, US President Joe Biden announced a ban on the import of Russian oil and other energy imports with immediate effect in the county as punishment for the invasion of Ukraine. This decision was taken despite the risks of significantly higher fuel costs in the US that might stifle economic growth. The move however was broadly backed by the American people and the US Congress.
The latest embargo on Russian energy products is the culmination of the broad US and European sanctions imposed on Russia for unleashing Europe's biggest conflict since the Second World War. Hundreds of civilians have been murdered as a result of Russian airstrikes in Ukrainian cities.
By the end of 2022, the United Kingdom will stop importing Russian oil and oil products.
"The oil shock by nature is an accruing one, not a one-off, and the potential for the market to hit $150 before returning to $100 is easier for investors to digest," said Stephen Innes, managing partner at SPI Asset Management. "Putting in force sanctions without first developing surrogate supply contingencies risks Brent crude (going) much higher."
There was a jump of 2.66 per cent in the global benchmark Brent crude at $131.39 a barrel at the time of writing this report on Wednesday but was still lower than Monday's high of $139.13.
The price of West Texas Intermediate crude in the United States went up 2.19 per cent to $126.41 a barrel.
Russia calls its efforts in Ukraine a "special operation," and warned earlier this week that if the West blocks its oil shipments, prices could rise to $300 a barrel and the major gas pipeline to Germany might be shut down.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.26 per cent in stock markets, as a reversal in Chinese stocks erased previous advances.
After inflation figures revealed a mix of lackluster domestic demand and high commodity costs, China's blue-chip CSI300 index fell 1.27 per cent, as the country continued to report rising numbers of coronavirus infections.
The Hang Seng fell more than 2 per cent in Hong Kong, where Covid19 infection levels had reached new highs.
However, gains elsewhere offset larger regional losses, with Australia's resource-heavy ASX 200 up 0.85 per cent. The Nikkei gained 0.3 percent in Tokyo.
"I think we're getting Russia fatigue. We've had 10-12 days now of bombardment of Russia headlines. And whilst it's tragic what's happening over there, at the same time I think we've priced in effectively the worst of the worst," said Matt Simpson, senior market analyst at City Index.
 The Dow Jones Industrial Average plummeted 0.56 percent, the S&P 500 slid 0.72 per cent, and the Nasdaq Composite fell 0.28 per cent in Asia, following another day of losses on Wall Street.
"Markets remain volatile, unable to confidently price implications from the news flow given the complex state of the global economy," said Rodrigo Catril, senior FX strategist at National Australia Bank.
The yen fell 0.16 to 115.84 yen, while the dollar fell to 99.056 yen versus a basket of peers, indicating a retreat from safe-haven assets.
The euro was last quoted at $1.0907, up 0.07 per cent, while the rouble was last quoted at 122.5 to the dollar.
Treasury rates fell somewhat, with the benchmark 10-year note yielding 1.8507 per cent Wednesday night, down from 1.871 per cent late Tuesday. The yield on the 2-year note was 1.6008 per cent last week, down from 1.629 per cent the day before.
Gold rose 0.14 per cent to $2,055.31 per ounce after falling earlier due to a strong dollar.