Oil prices near all-time record as US and Europe consider ban on Russian crude
Brent crude jumped $20 to $139.13 at start of trading on Monday, with analysts predicting further increases
Last modified on Sun 6 Mar 2022 20.05 EST
Oil prices have soared more than 10% and are closing in on their all-time high levels after the risk of a US and European ban on Russian crude threatened a stagflationary shock for world markets.
The global benchmark of Brent crude hit US$139.13 a barrel at the start of trading on Monday, a leap of more than $20 on Friday’s close of $118.03.
The all-time of $147.50 was reached in July 2008 but some analysts think that mark could be surpassed because of the geopolitical impact of the Ukraine crisis.
Although the price slipped back to $130, consumers still face higher household energy and petrol costs, while inflation will rise across the board if businesses are forced to pass on higher fuel expenses.
The price of natural gas is closely linked to crude oil and is sure to lift again. Gas prices set a new record high mark on Friday in the UK, for example, when national balancing point (NBP) benchmark soared above 500p a therm.
Stock markets are looking at big losses when Monday’s trading day begins, with the Nikkei in Japan down 1.50% in futures trade, the FTSE100 off 3.55% and the S&P500 down 1.25%.
Having climbed 21% last week, Brent crude was further energised by the risk of a ban of Russian oil by the US and Europe.
“If the west cuts off most of Russia’s energy exports it would be a major shock to global markets,” said Bank of America chief economist Ethan Harris.
He estimated the loss of Russia’s 5m barrels could see oil prices double to $200 a barrel and lower economic growth globally.
Commodity prices in general are having their strongest start to any year since 1915, Bank of America said. Among the many movers last week, nickel rose 19%, aluminium 15%, zinc 12%, and copper 8%, while wheat futures surged 60% and corn 15%.
That will only add to the global inflationary pulse with US consumer price data this week expected to show annual growth at a stratospheric 7.9%, and the core measure at 6.4%.
It leaves a tough decision for the European Central Bank when it meets this week against a backdrop of a sharply falling euro.
The nightmare scenario of stagflation – where inflation combines with stagnating growth – looms for the world economy.
“Given the potential for stagflation is very real, the ECB is likely to maintain maximum flexibility with its [quantitative easing] programme at €20bn through the second quarter and potentially beyond, thus effectively pushing out the timing of rate hikes,” said Tapas Strickland, an economist at NAB.
“Higher inflation forecasts, though, mean rate hikes will be needed on the horizon.”
With the outlook for European growth darkening, the single currency took a beating and fell 3% last week to its lowest since mid-2020. It was last down 0.6% at $1.0864 and risked testing its 2020 trough of about $1.0635. It has also lost a lot of ground against the pound, which now buys €1.214.
The dollar was broadly firmer, supported in part by a strong payrolls report which only reaffirmed market expectations for a rate hike from the Federal Reserve this month. The dollar index was last at 98.812 having climbed 2.3% last week.
Gold benefited from its status as one of the oldest of safe harbours and was last up 0.7% at $1,983 an ounce.
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