New Covid-19 lockdowns in China pulled oil prices below $ 100 per barrel. barrel, which gave rise to new uncertainty about a global economic expansion hampered by the war in Ukraine, rising inflation and the end of stimulus.
New York oil futures fell 6.4% on Tuesday, extending their decline over the past week to more than 22%. Last week exceeded $ 130 pr. barrel for the first time since the financial crisis, reflecting expectations that a war-related supply shock could last. Trade was hampered by ceasefire talks, bargaining buyers of Russian oil in Asia and a reminder from China that the pandemic is not over yet.
Markets from stocks and bonds to timber and wheat futures has been plagued by volatility this year as central banks begin to wean economies from pandemic support and Russia’s invasion of Ukraine threatens to increase supply of critical raw materials. Expectations that the Federal Reserve will raise interest rates on Wednesday for the first time in more than three years have reduced the appetite for some of the riskier assets that took flight in the pandemic’s easy-money environment.
Although they won Tuesday, technology stocks have put several years of outperformance on hiatus to lead to a 17% drop in the Nasdaq Composite this year. Chinese stocks have lost 7.4% this week as concerns rise over health in global supply chains and issues of growth in China. Energy stocks, where investors have sought protection from the highest inflation in a generation, have lost some luster recently.
The S&P 500 added 2.1% on Tuesday despite a 3.7% drop in energy stocks. The Dow Jones Industrial Average rose nearly 600 points, or 1.8%.
The unpredictability from all angles has blurred economic forecasts and made business decisions difficult for everyone from oil drillers and metalworkers to restaurant owners and landlords. At investor conferences and on earnings calls, “uncertainty” has become a buzzword.
On Tuesday, CEO Herbert Diess told investors that the war has called into question the German carmaker’s optimistic outlook for 2022.
“It’s getting worse, not better, both in terms of economic growth and inflation,” said Sung Won Sohn, professor of finance and economics at Loyola Marymount University in Los Angeles. “The uncertainties are rising.”
Last week, oil prices were the highest they have been in more than a decade, spurred on by speculation and panic buying after the United States sanctioned Russia. The concern was that production from one of the world’s leading oil exporters would dry up, just as economies emerged from the pandemic and began burning more fuel. Higher oil prices seemed like the safest bid on the market, with stocks and bonds being sold.
On Tuesday, West Texas Intermediate lost $ 6.57 per share. barrel to 96.44 USD, which is a decrease of more than 22% from a week earlier, when the main US oil price fell to 123.70 USD. Brent oil, which burst above $ 130 per barrel. barrel at the beginning of last week’s trading, 6.5% fell Tuesday to $ 99.91.
Gasoline and diesel futures in New York have also fallen, reversing much of their rise since Russia’s attack. Energy stocks, which make up the only segment of the S&P 500 stock index that has risen this year and most recently acted as an inflation buffer, also got a hit on Tuesday.
Exxon Mobile Corp.
shares fell 5.7% while refinery
Valero energy Corp.
sank 6.8 pct.
Yet fuel prices remain high enough to push household budgets already strained by the highest inflation in decades. Consumer energy costs in the US rose 25.6% in February from a year earlier compared to a 7.9% increase in total inflation, according to the Bureau of Labor Statistics.
Despite falling to less than $ 100 per share. barrel, oil is 49% more expensive than a year ago. Despite falls in futures markets, the national average retail price for a gallon of unleaded gasoline hit a record $ 4.33 over the weekend and was only about a penny cheaper on Tuesday, according to AAA.
Before Russia attacked Ukraine, analysts expected oil prices to reach $ 100 this summer in high season for driving. This forecast was based on drillers falling behind in demand, which picked up speed as economic restrictions eased around the world. Russia’s aggression increased concerns about fuel supplies.
The organization of oil-exporting countries gave up trying to predict the effect of the war on energy markets. The cartel on Tuesday refused to make changes to its monthly market forecastand said it could not accurately predict the far-reaching consequences of the conflict.
China’s new restrictions are now calling into question oil demand, raising doubts that the world is moving beyond Covid-19 towards stronger growth. In addition to closed Chinese drivers, factories in locked areas may struggle to produce enough goods, exacerbating the shortage and raising prices.
“It’s the new wrinkle in history that we’re struggling with,”
said chief economist Bruce Kasman. He expects inflation to run much higher in the coming months than previously thought, which will ultimately hamper households’ ability to spend broadly, slowing economic growth. “Right now, I don’t want to think too much about where we want to be six or nine months from now because there are too many moving parts,” he said.
The bank’s economists estimate that the global economy will grow by 2.5% annually in the first half of this year, which is a decrease compared to their expectation of a growth of 4% a month ago. They expect consumer prices to grow at an annual rate of 7% during this period instead of their previous estimate of 4%.
Bank of America predicted last week that global output will grow by 3.6% this year, down from its previous estimate of 4.3%, but warned that the projection could change again given how fast conditions change. “Predicting the impact of the Russian invasion is like catching a falling knife,” the bank’s economists wrote in a note to customers.
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