Could Oil Prices Surpass $300 a Barrel?
Prime Minister Scott Morrison is trying to strike a balance between economic and national security. “We are facing these incredibly unique times, we have entered a new era – the world has become a more uncertain, less stable and more dangerous place.”
Good oil is a predominantly Australian idiom meaning reliable and relevant information. The right oil is what we deliver every day here at Proactive.
Lately, “good oil” has been dominated by oil itself and its rising price as markets grapple with the Russian-Ukrainian war.
Today is no different.
Australians woke up to the news that they could soon be paying an average of around $2.15 a liter for driving pleasure.
This could be one of the reasons why only 20% of office workers returned to the office after COVID.
Of course, people have also become accustomed to the freedoms that working from home offers: more time with family, two extra hours a day, no crowded journeys on public transport that are delayed or canceled, bigger wallets and healthier eating habits.
It’s a story in itself.
But back to oil and Brent rose above $130 a barrel, the highest level since July 2008.
The price of US Nymex crude rose 3.2% to US$119.42 a barrel. Gas prices in Europe have also reached record highs.
The price could skyrocket if the US and European governments ban oil imports.
Russian Deputy Prime Minister Alexander Novak warns that a ban on Russian oil imports would have “catastrophic” consequences.
“The price spike will be unpredictable – over $300 a barrel, if not more,” Novak said in remarks carried by Russian news agencies.
Novak said it would be impossible to quickly replace Russian oil on the European market.
“It will take more than a year and it will be much more expensive for European consumers.
“European politicians should then give their citizens, the consumers, an honest warning of what awaits them and that prices at petrol stations, for electricity, for heating will skyrocket.”
Meanwhile, Germany, Britain and the Netherlands have warned of a savage ban on Russian energy imports, citing no immediate alternative supply.
“Europe has deliberately exempted Russia’s energy supplies from sanctions,” German Chancellor Olaf Scholz said in a statement.
“Europe’s energy supply for heat generation, mobility, electricity supply and industry cannot be secured in any other way at the moment.”
“It is therefore of essential importance for the provision of public services and the daily life of our citizens.”
Germany is heavily dependent on Russian fossil fuels, importing around 55% of its gas and 40% of its oil and coal from Russia. While Germany has pledged to wean itself off Russian supplies, it says it will take time to do so.
British Prime Minister Boris Johnson said it was a “step by step process”.
While rising prices may be good for investors in non-Russian oil suppliers and explorers, the rest of the world is eagerly waiting to see what happens next at the gas pump.
With that in mind, “global markets remain jittery and risk averse in the face of the ongoing war in Eastern Europe,” said a note from Charles Schwab (NYSE:SCHW).
“Concern continues to grow as an already sizzling inflation backdrop is amplified by the continued spike in oil prices.”
Read: Inflation risks rise as oil, gas and coal prices hit multi-year highs
Here’s what we saw overnight (source Commsec):
- The euro fell from a high near US$1.0950 to a low near US$1.0805 and stood at US$1.0865 in US afternoon trading.
- The Australian dollar fell from a high of nearly 74.40 US cents to a low of nearly 73.10 US cents and was at 73.15 US cents in US trade.
- Crude prices recorded their biggest daily moves after the United States said it was considering a ban on Russian oil. There were also doubts over an increase in Iranian crude exports as talks to revive a 2015 nuclear deal stalled.
- The price of Brent rose US$5.10 per barrel or 4.3% to US$123.21 per barrel after briefly hitting a 14-year high of US$139.13 per barrel.
- The price of US Nymex crude rose US$3.72 or 3.2% to US$119.40 a barrel after hitting a 14-year high of US$130.50 an ounce.
- Base metal prices were mixed on Monday. Copper, aluminum, lead and tin fell 4.2%.
- Nickel climbed 62.8% to record highs and zinc rose 1.5%.
- The gold futures price rose US$29.30 or 1.5% to US$1,995.90 per ounce.
- Spot gold was trading near US$1,998 per ounce in US trading.
- Iron ore rose US$10.35 or 6.8% to US$162.75 per tonne.
Australia is now on Russian President Vladamir Putin’s “blacklist”. Australia has been added to a list of states and territories committing “hostile actions” against the Russian Federation, Russian natural and legal persons.
Australia joins Britain, the European Union, Japan, New Zealand and others who have imposed sanctions.
From now on, corporate transactions entered into by a Russian company or person with an Australian company or individual require special approval from the Russian State Commission.
In addition, payment for any goods and services over 10 million rubles, equivalent to $86,000, must now be paid in rubles.
Meanwhile, Prime Minister Scott Morrison is trying to balance economic security with national security.
“We are facing these incredibly unique times, we have entered a new era – the world has become a more uncertain, less stable and more dangerous place,” Morrison said.
“Economic programs are simply not a throwback to the 1990s. We have to meet the challenge that exists today, at that time.”
The prime minister said he wanted to unlock Australia’s sovereign manufacturing capacity, a move he said would create well-paying jobs for the next generation.
As for the Australian market, it is forecast for a flat morning.
ASX SPI 200 futures are up 1 point, or less than 0.1%, at 7,028 after falling 18 points earlier.
Plunged yesterday as the United States considered banning imports of Russian oil.
Technology, Financials, Communication Services and Consumer Discretionary led the declines.
American Express lost 8.0% and McDonald’s fell 4.9%.
Of course, energy was up 1.5% and defense actions also led the gains.
Shares of Lockheed Martin Inc (NYSE:LMT) rose 1.8%.
At the close, the Dow Jones index was down 797 points or 2.4%. The S&P 500 index fell 3.0% and the Nasdaq fell 482 points or 3.6%.
A close below 33,119.685 was the level needed to mark a 10% decline from the Dow’s record high of Jan. 4. This corresponded to the commonly used definition of a correction. The Dow Jones closed Monday’s trade at 32,817.38.
This is the first time the Dow Jones has been in correction territory since Feb. 27, 2020. This has extended into bearish territory, defined as a decline of at least 20% from a recent high.
They were also hit on Monday, but pulled higher from session lows as the energy sector rose alongside higher oil prices.
The energy sector increased by 4.3%.
Shares of Shell gained 8%, while banks fell 4.1% and the auto sector also led declines.
The European Central Bank meets later this week, but with possible stagflation – low economic growth, high inflation – on the agenda, investors are uncertain about the future direction of interest rates.
The pan-European STOXX 600 index fell 1.1%. Germany’s Dax index lost 2.0% with Britain’s FTSE index down 0.4%.
In London trading, shares of Rio Tinto fell 0.1% while shares of BHP rose 2.2%.