Stocks tumble after oil prices touch US$130 per barrel

By Rumi Samuel Published on March 08, 2022
Stocks tumble after oil prices touch US$130 per barrel

Stocks tumbled on Wall Street on Monday as another big leap for oil prices threatens to squeeze inflation’s grip on the global economy.

The S&P 500 fell 2.2 percent after a barrel of US oil surged to US$130 overnight on the possibility the United States could bar imports from Russia. Stocks around the world slid even more sharply earlier in the day, also taking their cue from oil’s movements, though their losses moderated as crude receded toward US$120 per barrel.

The Dow Jones Industrial Average was down 610 points, or 1.8 percent, at 33,004, as of 2:28 p.m. Eastern time, and the Nasdaq composite was 2.5 percent lower. Stocks are on pace for their worst losses since Russia invaded Ukraine.

Gold and a measure of nervousness on Wall Street were also higher, though not by quite as much as when oil prices hit their peak. The price of gold briefly touched US$2,007.50 per ounce before settling at US$1,995.90, up 1.5 percent.

Oil prices have soared recently on worries that Russia’s invasion of Ukraine will upend already tight supplies. Russia is one of the world’s largest energy producers, and oil prices were already high before the attack because the global economy is demanding more fuel following its coronavirus-caused shutdown. 

US House Speaker Nancy Pelosi said in a letter to her colleagues on Sunday that “the House is currently exploring strong legislation” to further isolate Russia because it attacked Ukraine. That could include a ban on imports of Russian oil and energy products, she said.

It is a major step that the US government has not yet taken, despite a long list of moves to punish Russia, as the White House has said that it hopes to limit disruptions to oil markets. It wants to limit price jumps at the gasolene pump.

Reports also said that US officials may be considering easing sanctions against Venezuela. That potentially could free up more crude oil and ease concerns about reduced supplies from Russia.

A barrel of US crude oil was trading at US$120.06 per barrel, up 3.9 percent, after earlier touching US$130.50. Brent crude, the international standard, was up 4 percent at US$122.88 per barrel after earlier topping US$139.

Markets worldwide have swung wildly recently on worries about how high prices for oil, wheat, and other commodities produced in the region will go because of Russia’s invasion, inflaming the world’s already high inflation. In the United States, prices for consumers jumped last month from their year-ago level at the fastest rate in four decades.

The conflict in Ukraine also threatens the food supply in some regions, including Europe, Africa, and Asia, which rely on the vast, fertile farmlands of the Black Sea region, known as the “breadbasket of the world.”

The war puts extra pressure on central banks around the world, with the Federal Reserve on course to raise interest rates later this month for the first time since 2018. Higher rates slow the economy, which hopefully, will help rein in high inflation. But if the Fed raises rates too high, it risks forcing the economy into a recession.

“Their reaction to geopolitics can’t be measured, so there’s uncertainty around that,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.

Some investors have seen the war in Ukraine as potentially pushing the Fed to go easier on rate increases. Investors love low rates because they tend to boost prices for stocks and all kinds of markets. 

But that may not necessarily be the case this time, Goldman Sachs economists wrote in a report. With prices for oil, wheat, and other commodities potentially rising, even more, the threat is higher for a sustained, high inflation to settle on the economy. That could flip the Fed’s traditional playbook.

“After several decades in which economic, financial, or political shocks invariably caused interest rates to fall, markets may have to relearn that the opposite can also be true,” Goldman Sachs economist Jan Hatzius wrote.

Beyond sanctions brought on Russia by governments because it invaded Ukraine, companies are also levying their punishments. The list of companies exiting Russia has grown to include Mastercard, Visa, and American Express, as well as Netflix.

The value of the Russian rouble continued to slide amid all the financial pressure, down by nearly another nearly 20 percent. It dropped below 0.7 cents.

Rumi Samuel

Rumi Samuel

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