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Oil Prices Drop 30% in a Week?

Oil Prices Drop 30% in a Week?

The Price of Oil has plummeted 30% in a week.
What. The. Heck.

Following Russia’s invasion of Ukraine, global oil prices skyrocketed.

Brent crude jumped above $139 per barrel just over a week ago. Analysts predicted that prices may hit $185, then $200 as traders shied away from Russian oil, driving up inflation and putting a burden on the global economy.

Since then, however, there has been a sharp turnaround. Brent crude prices, the global benchmark, are down nearly 30% from their high. After losing another 7% on Tuesday, they’re now trading below $100 per barrel.

What’s going on: The unusually fast reduction has been fueled by optimism that Saudi Arabia and the United Arab Emirates will increase oil production, and that Chinese consumption will fall as a result of new coronavirus restrictions in large cities. This would help to relieve the market’s stress.

Analysts warn, however, that we are not yet out of the woods. Oil is still selling at a considerable premium to its cost of production, and severe fluctuations are expected to continue in this period of great uncertainty.

“I wouldn’t rule out $200 per barrel just yet,” Bjrnar Tonhaugen, Rystad Energy’s head of oil markets, is quoted as saying. “It’s far too early.”

Oil prices soared after the invasion, as traders began to see Russian petroleum exports as untouchable. This has generated concerns about how that supply of 4 to 5 million barrels per day would be replenished, especially when demand for gasoline rises throughout the summer.

Investors, on the other hand, appear to be questioning if they went too far, too quickly in the last week. The UAE’s ambassador to Washington stated that the government wants to expand oil output, raising expectations that the Organization of the Petroleum Exporting Countries, or OPEC, could finally interfere. Meanwhile, despite the ongoing conflict, Russia and Ukraine continue to communicate.

In the near run, China’s resolve to preventing the spread of Covid-19, which has resulted in a lockdown in the tech capital of Shenzhen and new regulations in Shanghai, might mean the country requires less energy. On a daily basis, China imports roughly 11 million barrels of oil.

“People realized we’re still in the middle of an pandemic,” Tonhaugen explained.

Why it matters: The decline in oil prices has helped keep gasoline costs in the United States from rising. For the time being, they’ve leveled down, albeit a gallon of petrol still costs over $4.32 on average.

While $100 per barrel of oil is still quite costly, if prices continue in that range, it may alleviate some concerns about inflation speeding up.

Policymakers would probably feel a sigh of relief.

Investors, on the other hand, appear to be uneasy as they analyze the fallout from Russia’s incursion. Russian oil continues to trade at a $26 discount to Brent.

Analysts feel the course of events has been determined.

According to Giovanni Staunovo of UBS, oil will trade at $125 a barrel by the end of June. Tonhaugen of Rystad Energy, for one, believes that while the war progresses, prices will continue to break records.

He explained, “This is the calm before the storm.”

 

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Oil Prices Drop 30% in a Week?

Goldman Sachs: 35% Chance of Recession This Year

Goldman Sachs: 35% Chance of Recession This Year

The war in Ukraine, rising inflation, increasing interest rates
= higher chance of recession this year

Europe’s dependency on Russian energy has increased the chances of the area entering a recession this year, as rising prices forces people to cut back on spending. The United States is more protected against the rise in oil and gas costs than other countries, but it is not immune.

Goldman Sachs has lowered its growth prediction for the United States in 2022. During the first three months of the year, it has seen little to no growth.

The likelihood of a recession in the United States during the next year has grown to as high as 35 percent, according to Goldman’s analysts, lead by Jan Hatzius.

“Rising commodity prices will almost certainly have a negative impact on consumer spending, as households — particularly lower-income households — are forced to spend a larger share of their income on food and gas,” they told clients on Thursday.

Morning Consult and Ipsos real-time data on consumer confidence “suggest a dramatic fall in consumer confidence since Russia invaded” Ukraine, they said.

It isn’t going to be the only cause of anxiety. Financial conditions have tightened as well, perhaps making it more difficult for enterprises to obtain funds. America’s worldwide supply lines and operations will be harmed as a result of Europe’s problems.

Sanctions imposed on Moscow as a result of the invasion of Ukraine are wreaking havoc on the Russian economy. According to the Institute of International Finance, it would contract by 15% this year, which would be twice as bad as the recession that followed the global financial crisis.

However, because Russia is a significant supplier of oil and gas, as well as important agricultural products and industrial metals, the consequences of its economic collapse and isolation would be felt worldwide. Europe is the most vulnerable, as it is heavily reliant on Russia for energy, but the rise in energy and food costs will be felt across the Atlantic as well.

A US recession is not a certain conclusion. Wells Fargo predicted a recession in Europe but not in the United States on Thursday. Treasury Secretary Janet Yellen said in an interview with CNBC on Thursday that the labor market is strong and that American households are in “excellent financial position.”

“Inflation is a concern that we need to address,” Yellen added, “but I don’t predict a recession in the United States.”

Goldman Sachs experts aren’t the only ones who see hazards increasing.

In a recent CNN Business piece, Mark Zandi, the chief economist of Moody’s Analytics, said, “There is a growing fear that increasing inflation could overcome the nation’s solid economic recovery, ending in a recession.”

The Federal Reserve will be under even more pressure as it considers its next step as a result of this. As part of its effort to bring inflation under control, the central bank plans to begin hiking interest rates this month. However, if it withdraws assistance for the economy too quickly, a recession may be more likely.

Despite the conflict in Ukraine, the European Central Bank announced on Thursday that it will restrict the money taps sooner than planned. Investors were taken aback by the hawkish tone.

“The US is likely to outperform Europe, which is likely to slip into recession, owing to the American economy’s greater internal resilience and agility,” the economist Mohamed El-Erian wrote in a column published this week. “However, the US Federal Reserve’s failure to respond to inflation in a timely manner last year — a historic policy mistake — will undermine policy flexibility.”

Investor Uncertainty

As the fight continues, investors will be wary of high inflation and weaker economic growth, as well as uncertainty about how much central banks can truly do to interfere.

Wells Fargo has decreased its S&P 500 year-end projection for 2022. It believes the index will continue to increase rapidly from present levels. However, the bank noted that war-related economic circumstances are expected to hurt corporate profitability, putting pressure on equities.

Following the invasion of Ukraine, Goldman Sachs (GS) and JPMorgan Chase (JPM) became the first big Western banks to pull out of Russia on Thursday. There will very certainly be more, at a cost of tens of billions of dollars.

Goldman is “winding down its operations in Russia in accordance with regulatory and licencing requirements,” according to the latest news. JPMorgan Chase followed suit with a similar announcement.

The withdrawals come as Western banks scrambled to assess their exposure to Russia following President Vladimir Putin’s invasion of Ukraine, which triggered harsh sanctions against the country’s financial system, including its central bank and key commercial lenders, VTB and Sberbank.

They also come after Western corporations have fled practically every other area of Russia’s economy, and ratings agencies have predicted a Russian debt default.

Remember that untangling Russia from the global financial system would be difficult, and the full scope of the consequences is still unknown.

According to the Bank for International Settlements, which banned Russia’s membership on Thursday, Russian firms owe more than $121 billion to international banks. Total claims against European banks amount to more than $84 billion. The countries with the most exposure include France, Italy, and Austria. $14.7 billion is owing to US banks.

Banks are also concerned about their Russian staff and what Moscow may do next.

Dmitry Peskov, a Kremlin spokesman, claimed Thursday that Russia’s economic condition is “totally unique,” and accused the West of starting an “economic war.”

Meanwhile, Putin has backed efforts to acquire assets left behind by Western corporations that have halted or abandoned operations in the country.

Meanwhile, In China…

The future of big Chinese firms traded on Wall Street has been put into question once again, sending prices plummeting.

The Securities and Exchange Commission of the United States said on Thursday that five Chinese businesses may be delisted from American stock exchanges for failing to fulfill auditing criteria.

Yum China Holdings, ACM Research, BeiGene Biotech, Zai Lab, and Hutchmed Pharmaceuticals were among the companies on the list.

Big tech stocks, on the other hand, were down. Investors are anxious that the US agency may add more businesses to the list.

Alibaba fell more than 5% in Hong Kong on Friday. On Thursday, its shares on the New York Stock Exchange fell roughly 8%. After finishing 16 percent down on Wall Street, JD.com dropped 11% in Hong Kong. Following a 6 percent decrease in the United States, Baidu was down about 5%.

Other corporations with dual listings in the US and Hong Kong saw their stock prices plummet as well.

Goldman Sachs: 35% Chance of Recession This Year

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Mortgage Rates Are Rising, Adding to Inflationary Costs

Mortgage Rates Are Rising, Adding to Inflationary Costs

Mortgage rates are rising again, fueled by concerns about growing inflation

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 3.85 percent in the week ending March 10, up from 3.76 percent the week before.

Fears of inflation and geopolitical uncertainty are both having an effect, according to Freddie Mac’s senior economist, Sam Khater.

“We expect rates to continue to climb in the long run as inflation broadens and shortages affect more sectors of the economy,” Khater added. “However, rate volatility is being driven by concern regarding the crisis in Ukraine, and this is likely to persist in the immediate term.”

According to George Ratiu, Realtor.com’s manager of economic analysis, the 30-year rate returned this week following a surge in the 10-year Treasury, which exceeded 1.95 percent.

“Investors are concerned about rising inflation as a result of a possible restriction on Russian oil imports, since the price of US crude has risen to almost $130 per barrel, the highest level in 13 years,” he added.

Inflation rose at its quickest rate in 40 years in February, raising fears of a consumer spending slowdown in the months ahead, according to Ratiu.

Last month, prices continued to rise, pushing a key inflation indicator to levels not seen since January 1982.

All eyes are on the Federal Reserve, which will meet next week and is likely to raise the federal funds rate in an effort to keep inflation under control.

“The key concern on many analysts’ minds is whether a 25-basis-point raise would be sufficient given the considerable labor shortage and inflation at levels not seen since the 1980s,” Ratiu said.

As the spring sales season heats up, the real estate market continues to see rising prices and record low inventories.

According to Realtor.com, a buyer of a median-priced property today faces a mortgage payment that is more than $290 per month more than a year ago.

“With a shortage of homes for sale, both first-time buyers and homeowners searching for a trade-up property are trapped by rising prices and borrowing rates,” Ratiu explained. “The actual problem for Americans is that rising inflation is eroding pay and salary growth, on top of rising housing and living expenditures.”

With rising inflation increasing costs and decreasing the buying power of the consumer paycheck, it’s only a matter of time before something breaks.

Mortgage Rates Are Rising, Adding to Inflationary Costs

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S&P Rebounds & Oil Increases as Investors Jump Back Into The Markets

S&P Rebounds & Oil Increases as Investors Jump Back Into The Markets

Following the S&P 500’s worst day since October 2020, stocks fluctuated dramatically on Tuesday, as investors remained cautious due to continuing geopolitical uncertainties and rising commodities prices.

After surging 586 points to its session high, the Dow Jones Industrial Average recently traded up 100 points. After soaring as high as 1.8 percent, the S&P 500 gained 0.2 percent. After sliding into bear market territory the previous day, the Nasdaq Composite gained around 0.5 percent.

Investors are still assessing rising commodity prices and sluggish economic development as a result of Russia’s invasion of Ukraine. Rising costs for oil, gasoline, natural gas, and precious metals such as nickel and palladium are raising fears of a global recession as inflation rises.

On Tuesday, WTI crude oil soared as much as 7% to $128 a barrel after President Joe Biden said that the US will restrict Russian oil imports. Oil prices soared to a 13-year high of $130 a barrel to start the week.

Due to rising oil prices, the energy industry was a bright spot on Tuesday. Chevron and Exxon both saw their stock prices rise by 5% and 2.5 percent, respectively. Plus, when oil prices continued to increase, investors’ attention switched to alternate energy sources, solar and other renewable energy companies rose. Enphase Energy and SunPower both increased by 14% and 21%, respectively.

Airlines and cruise lines made strides as well. Delta Air Lines increased by 6%, while American Airlines increased by more than 9%. Southwest Airlines and United Airlines were both up 7%. Norwegian Cruise Line’s stock also increased by more than 7%.

Tuesday’s “bounce was a small victory that the low may be in,” said Jim Paulsen, chief investment strategist for the Leuthold Group. “However, it may have to be tested again later today or later this week,” he added.

Brent crude, the international benchmark, hit a high of $139.13 per barrel overnight Sunday before settling at $123.21 per barrel, its highest level since July 2008. Brent was recently trading at $126, up 2%.

Consumers’ wallets are already feeling the effects of the crude price increase. According to AAA, the national average for a gallon of regular gas rose to $4.173 on Tuesday. The previous high was $4.114, which was set in July 2008 and was not adjusted for inflation.

Other commodity prices have also begun to rise again. On Tuesday, nickel prices briefly surpassed $100,000 per metric tonne, setting a new high.

Palladium futures, a critical metal in the electronics industry, gained another 5% to $3.04 an ounce, while platinum futures jumped over 3% to $1,149.70 an ounce.

“Perhaps there’s some relief that only the US is immediately shutting off Russian oil/gas, whilst the UK and EU are implementing their plans over several quarters. Furthermore, while the majority narrative on Russia/Ukraine is pessimistic, the components for a ceasefire are coming together,” stated Vital Knowledge founder Adam Crisafulli.

Treasury rates were also considerably higher, with the benchmark 10-year note rising almost 10 basis points to 1.85 percent as investors sold Treasuries amid rising inflation worries. Yields move in the opposite direction of price.

The move followed a sharp sell-off on Wall Street, with the S&P 500 dropping about 3% for its worst day since October 2020. The blue-chip Dow fell over 800 points for the sixth time in six sessions, while the Nasdaq Composite, which includes many of the market’s top tech firms, fell 3.6 percent, sliding into bear market territory, down 20% from its November peak.

Investors remained on the lookout for new developments in the escalating global tensions. Ukraine claims that Moscow is attempting to exploit the cease-fire agreement by allowing only Ukrainian citizens to flee to Russia and Belarus.

Shell has apologized for buying cheap Russian oil and said that it will sell all of its hydrocarbon interests in Russia. Russia has warned that if Western nations impose an embargo on petroleum exports, prices may rise to $300 per barrel. Shell’s stock increased by 3% on Tuesday.

With rising inflation and the war in the Ukraine, costs and tensions continue to escalate.

 

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S&P Rebounds & Oil Increases as Investors Jump Back Into The Markets

Second Biggest Oil Company in Russia Calls for An Immediate End to the War

Second Biggest Oil Company in Russia Calls for An Immediate End to the War

Russian owned Lukoil supplies 2% of the world’s supply of oil and is calling for an end to the war

President Vladimir Putin’s second-largest oil business has broken ranks with him.

Lukoil, which employs over 100,000 people and generates more than 2% of the world’s crude oil, has called for an end to Russia’s conflict in Ukraine.

In a message to shareholders, employees, and customers, the company’s board of directors said it was “asking for the military conflict to be ended as quickly as possible.”

“We send our heartfelt condolences to all those who have been impacted by this tragedy. We firmly support a long-term cease-fire and a peaceful resolution of disputes via serious dialogue and diplomacy,” the board stated.

Vagit Alekperov, chairman and CEO of Lukoil (LUKOY), is one of Russia’s wealthiest men. According to Reuters, the former Caspian Sea oil rig worker and his deputy, Leonid Fedun, possess the bulk of Lukoil’s shares.

The corporation is Russia’s second largest oil company, behind state-owned Rosneft, with activities in dozens of countries across the world.

It now faces significant difficulties as traders avoid Russian oil for fear of falling foul of Western sanctions, which do not specifically target fossil fuel shipments.

Following the invasion, Lukoil shares listed in London have lost nearly all of their value. On Thursday, trading in the company’s stock was halted.

In the United States, where 230 Lukoil fuel outlets are controlled by American franchisees, the oil giant is already facing demands for a boycott. The majority of Lukoil service stations are located in New York, New Jersey, and Pennsylvania.

Russian billionaires Mikhail Fridman and Oleg Deripaska broke ranks with the Kremlin earlier this week and urged for an end to the conflict. In a message to staff, Fridman, who was born in western Ukraine, expressed his desire for the “bloodshed to halt.”

Fridman is the chairman of Alfa Group, a private corporation with operations in banking, insurance, retail, and mineral water manufacturing largely in Russia and former Soviet republics.

He is also the chairman of Alfa Bank, Russia’s fourth largest financial services company and largest private bank. Sanctions were imposed on Alfa Bank last week, preventing it from raising funds in the US market.

Deripaska built his wealth in aluminium and was sanctioned by the US in 2018.

The crippling sanctions imposed on Russia are having a crippling effect on their economy and are putting increased pressure on Russian business owners who deal in international markets.

And yet the war continues on…at least for the moment.

Second Biggest Oil Company in Russia Calls for An Immediate End to the War

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Job Creation Smashes Expectations

Job Creation Smashes Expectations

Americans return to work,
destroying expectations and indicating the economy is growing stronger.

In February, the US economy added 678,000 jobs, beating experts’ projections.

It was the most productive month for employment creation since July. According to the Bureau of Labor Statistics, the country still needs to add 2.1 million jobs to get back to previous levels in February 2020 level in order to regain all of the jobs lost during the epidemic.

The consensus forecast for the report — 400,000 jobs – was once again off the mark. During the pandemic, the labour market’s erratic changes from month to month made forecasting virtually impossible.

The jobless rate fell to 3.8 percent, which was better than predicted and marked a new post-pandemic low.

The leisure and hospitality industry, which was impacted the most by Covid-related losses, added 179,000 jobs back. But to get back to pre-pandemic levels, the sector will require additional 1.5 million employment.

The majority of the jobs produced in February were in restaurants and bars, as Americans began to mingle more once the Omicron surge receded.

Job growth was particularly robust in professional services, health care, and construction.

Wages were unchanged in February, following a period of rapid wage rise as firms competed for talent and fought to keep current employees despite the persistent labour shortage.

Last month, average hourly wages were $31.58 per hour, barely one penny more than in January, bucking the recent trend.

That’s excellent news for those concerned that growing wages may exacerbate already-high inflation, such as the Federal Reserve.

The robust data released on Friday, which included a new Covid-era low for the unemployment rate, means the Fed’s expected interest rate hike later this month is all but guaranteed.

(We’ve heard that before.)

But a stronger than expected jobs report shows that people are returning to work and that the economy is strengthening.

Job Creation Smashes Expectations

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Big Corporations Are Voluntarily Cutting Off Russia

Big Corporations Are Voluntarily Cutting Off Russia

Even if they aren’t part of the sanctions,
many big companies are refusing to sell their products in Russia,
putting even more strain on the Russian economy

Governments aren’t the only ones squeezing the Russian economy. Dozens of large global corporations are following suit.

Even though they are not compelled to, an increasing number of enterprises are opting to shut their operations in Russia.

Apple (AAPL), Ikea, ExxonMobil, and General Motors are among the companies that have pulled out of Russia.

The corporations express alarm over Russia’s invasion of Ukraine, which has prompted considerable criticism in the United States and across Europe.

It’s not always clear if these big corporations are leaving to comply with official sanctions or for other reasons.

What is known is that there are several commercial reasons to avoid doing business with Russia.

First and foremost, there’s the issue of uncertainty. After all, why in the world would a company want to sell a product only to be paid back with quickly depreciating Russian currency? And why would you ship a car or a smartphone to Russia when you already have a huge demand for your product in western markets?

Sanctions against Russia’s financial industry may make recouping some of those losses difficult. Making things even more difficult for companies trying to conduct business in Russisa, Russia is putting restrictions on money leaving the country, so it’s getting harder to get paid for products already shipped..

“Businesses are asking themselves, ‘Do I want to continue where I don’t know if a contract I sign today will be completed weeks or months from now?'” said Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center. “The Russian financial system is in such a state of turmoil that it is just too unclear. Businesses despise unpredictability and this is unpredictability on a grand scale.”

Even in a crisis like this, the significant number of enterprises leaving Russia is exceptional, according to Lipsky.

“In general, they’ll continue to invest in a market if there are possibilities to earn money,” he added. “However, there is widespread agreement that marketing these items is inappropriate. That’s a unique dynamic I’ve never seen before.”

Economics aside, one can wonder if there isn’t some peer pressure felt by companies still doing business with Russia as they see their competitors leaving …in the form of an unstated social and moral obligation where ceasing business operations becomes a symbolic gesture against the Russian invasion of Ukraine.

Even the Kremlin admits that the acts of firms all around the world are causing an economic catastrophe in its own country.

In a conference call with foreign media, Kremlin spokesman Dmitry Peskov remarked, “Russia’s economy is suffering heavy blows.” On Tuesday, state news agencies TASS and RIA cited Russian Prime Minister Mikhail Mishustin as stating that the Russian government is considering what actions it may take to prevent Western corporations from withdrawing funds from Russia.

One element that makes it simpler for corporations to abandon Russian enterprises is the country’s lack of global economic clout.

According to the International Monetary Fund, Russia’s GDP is around 25% lower than Italy’s and more than 20% lower than Canada’s, despite the fact that both countries have a fraction of Russia’s population.

It is primarily a supplier of energy and other commodities, such as wheat, timber, and a range of metals (including aluminum) – the majority of which are readily available elsewhere.

“There are other options,” Lipsky remarked. “Companies are able to identify those alternative markets and trading partners, as well as satisfy all of their shareholders’ fiduciary obligations.”They’ve decided that risking Russia isn’t worth it.”

In the energy market, there is a distinct aversion to risk. Several western nations have spared Russia’s oil industry from sanctions so far, in the hopes of averting global energy shortages and price rises.

However, despite severe reductions, much of the Russian oil on the market remains unsold. Given the severe restrictions imposed on Russian institutions, traders are unsure if any agreements they make for Russian oil will be able to be completed.

Finding oil tankers ready to call on Russian ports, as well as insurance firms willing to cover the ships and supplies, has been problematic.

All of this has resulted in a “de facto embargo” on Russian oil, according to oil expert Andy Lipow of Lipow Oil.

Big Corporations Are Voluntarily Cutting Off Russia

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SEIZURE: Russian Oligarch’s Yacht Grabbed

SEIZURE: Russian Oligarch’s Yacht Grabbed

Sanctions on Russia become personal,
as countries start seizing assets owned by Russians with ties to Putin.

The French finance ministry said on Thursday that a boat owned by Russian businessman Igor Sechin had been confiscated.

Sechin is the CEO of Rosneft, a Russian oil company. Sechin was sanctioned by the European Union earlier this week, with Putin hailing him as one of his “most trusted and closest aides, as well as his personal friend.”

In January, the yacht “Amore Vero” — which means “True Love” in Italian — landed in the French Mediterranean port of La Ciotat. On April 1, it was supposed to leave the harbour.

In a tweet, French Finance Minister Bruno Le Maire stated, “Thank you to the French customs officials who are executing the European Union’s sanctions on people linked to the Russian regime.”

From 2008 to 2012, Sechin served as Russia’s deputy prime minister. His ties to Putin are “long and deep,” according to the European Union, with the two men in daily contact.

Le Maire revealed earlier this week that France has formed a task group to compile a list of financial assets and luxury items owned by Russians who are subject to EU sanctions.

On Sunday, BP (BP) announced that it will sell its 19.75 percent interest in Rosneft and relinquish two board seats.

Sanctions on Russia are beginning to crush their economy, and further sanctioning their officials is further cutting off their ability to interact financially with the rest of the world.

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SEIZURE Russian Oligarchs Yacht Grabbed

Collapsing Russian Economy Poses Risk of Contagion

Collapsing Russian Economy Poses Risk of Contagion

If the Russian economy implodes,
investors worry about the ripple effect could run through the rest of the world’s financial system…reigniting memories of the Lehman collapse of 2008

New Western sanctions are putting a lot of strain on Russia’s economy. As a result, financial institutions are having to examine how vulnerable they are if the market collapses.

The situation is as follows: According to the Bank for International Settlements, foreign banks have about $120 billion in claims against Russian counter-parties as of September 30, 2021.

Missed payments could build up and cause substantial losses as the ruble falls in value and Russia becomes further cut off from the global financial system.

The two main European banks with the largest operations in Russia, Societe Generale (SCGLF) of France and UniCredit (UNCFF) of Italy, are being scrutinised closely. SocGen’s stock has dropped 25% since Russia’s invasion of Ukraine last week, while UniCredit’s stock has dropped 23%.

The consequences from Russia’s invasion of Ukraine will put pressure on big western European banks’ asset quality, according to Fitch Ratings, and their operations will be put at risk as they rush to comply with international sanctions.

So where’s the chink in the armor? Corporate and investment banking activities, as well as investment portfolios, according to Fitch.

Sanctioned entities may be unable to repay loans, requiring banks to write off part of them.

Compliance with sanctions would also be difficult, according to Fitch, because several of Russia’s largest banks are not part of the SWIFT global payment system.

Societe Generale said in a statement on Thursday that it “is diligently executing the procedures necessary to strictly enforce international penalties as soon as they are made public” and that it “is scrupulously complying with all applicable laws and regulations.”

At the end of last year, the bank reported having about $21 billion in Russian exposure. It did underline, however, that it is capable of withstanding even the worst results.

“The Group has more than enough buffer to withstand the repercussions of a possible extreme scenario in which the Group’s property rights to its banking assets in Russia are removed from the Group,” Societe Generale stated.

UniCredit, which has had a presence in Russia since 1989, stated last week that its Russian subsidiary is “extremely liquid and self-funded,” and that the franchise generates only 3% of the bank’s total income.

Because of the political situation in Ukraine, it backed out of a possible deal for Russian state-owned bank Otkritie earlier this year.

Banks in the United States can be affected as well. At the end of 2021, Citigroup had $5.4 billion in “Russia credit and other exposures,” according to a statement released this week. On Wednesday, Citi’s chief financial officer, Mark Mason, told investors that the firm had been conducting tests to assess the repercussions “under various stress scenarios.”

Since Russia’s invasion, Citi shares have declined by 4%. The KBW Bank Index, which covers banks in the United States, is down about 2%.

It’s significant because: When examining the effects of cutting Russian banks off from SWIFT, Credit Suisse investment analyst Zoltan Pozsar referenced Lehman Brothers’ failure in 2008. He believes the consequences will spread throughout markets, prompting central banks to intervene.

There hasn’t yet been a “Lehman moment” of systemic significance. However, as Russia’s economy falls, it will be crucial to monitor bank communications.

“One of the anxieties,” Robert Sears, chief investment officer of Capital Generation Partners, told me, “is that you don’t know for sure all the repercussions.”

With the global financial system so closely intertwined, it’s not hard to imagine how the ripples caused by a failing economy in a country like Russia could cause a tsunami around the world.

Collapsing Russian Economy Poses Risk of Contagion

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Energy Prices Spike: Natural Gas +60%, Oil The Highest Since 2014

Energy Prices Spike: Natural Gas +60%, Oil The Highest Since 2014

As the Russian military rolls closer to Kyiv,
crude and natural gas spike to eye watering levels as the world fears a supply shock.

On Wednesday, as Russia’s increasing military assault in Ukraine raised fears of a supply shock, global crude oil prices soared to more than $110 per barrel and natural gas prices soared to a new high in Europe.

Brent oil futures, the worldwide benchmark, increased by over 9% to $113.65 per barrel, the highest since 2014. Oil futures in the United States rose more than 8% to $112.25 a barrel. Wholesale natural gas prices in Europe soared by 60% to a record high of €194 ($215) per megawatt hour.

This is more than double what it was on Friday.

Louise Dickson, senior oil market analyst at Rystad Energy, stated, “The market fear is here. The first higher price reaction following the commencement of the crisis in Ukraine six days ago is just becoming stronger.”

Western sanctions imposed in the aftermath of the invasion of Ukraine have not directly affected Russia’s energy resources. However, if Russia continues its offensive, the US and Europe may be forced to play this major card.

On Wednesday, White House press secretary Jen Psaki told CNN, “It’s still on the table, it’s not off the table.”

President Joe Biden, on the other hand, does not want to “topple the global oil markets or the global marketplace, or harm the American people more with increased energy and gas costs,” according to her.

Moscow is already finding it more difficult to sell supplies of Russian crude oil to merchants and refineries concerned about getting caught in the crossfire of financial-system penalties. Tanker operators are apprehensive of the threat to ships in the Black Sea, and large international oil firms are abandoning operations there.

brent crude oil price

According to Commerzbank analysts, Russia’s hallmark Urals oil grade was selling at a $18 per barrel discount to Brent crude on Wednesday as customers ignored Russian supplies. According to the researchers, the discount hasn’t been this large since the Soviet Union’s demise.

“Oil price differentials indicate a clear reticence to buy Russian crude,” said Shin Kim, head of oil supply and production research at S&P Global Commodity Insights. “There remains to be [a] danger of new sanctions that might indirectly or directly damage oil purchases or supplies.”

Despite efforts by the West to calm markets, the enormous price increases risk stoking already high global inflation. The United States and 30 other International Energy Agency members approved the release of 60 million barrels of emergency oil reserves on Tuesday, enough to replace about two weeks of Russian oil supplies.

“In the end, this will not be enough to calm the market. It’s a band-aid approach, to be sure.” RBC Capital Markets managing director of global energy strategy Michael Tran said.

Fuel will become more costly throughout the world as a result of the massive price hikes, raising the cost of travel and commuting. They will also raise inflation and may slow economic development, making choices by global central banks to combat increasing prices more difficult.

Investors fear that as a result of the crisis in Ukraine — a critical pipeline route, more Western sanctions that might target Russia’s economy, or retaliation by Moscow — Russian energy exports could be reduced or terminated.

“Buyer interest in Russian oil is dwindling,” according to Commerzbank analysts. “An interruption of Russian oil shipments looks to be increasingly priced in,” they noted.

According to Alex Froley, a market analyst with Independent Commodity Intelligence Services, Russian natural gas is still flowing to Europe. However, he stated that there is “a lot of ambiguity and fear about how things may evolve.”

According to Froley, the United Kingdom has blocked Russian-owned and controlled ships from entering British ports, potentially disrupting liquefied natural gas supplies from Russia, which account for between 3% and 4% of the country’s gas supply.

“Traders may be apprehensive if continental Europe follows suit and imposes a similar embargo on Russian ships,” he warned.

OPEC Sitting On Their Hands

On Wednesday, the Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia, decided to adhere to their plan of gradually adding oil to the market, despite demand from developed nations to do more to lower prices.

In a statement, the Saudi-led group OPEC said it will boost supply by 400,000 barrels per day in April, a small fraction of Russia’s 10 million barrels per day crude oil output.

“Recent oil market fundamentals and consensus on its forecast pointed to a well-balanced market, and current volatility is triggered by current geopolitical developments rather than changes in market fundamentals,” OPEC stated.

More Iranian barrels might be put on the market as a result of nuclear talks between Iran and the US, but this would not help the situation in the short term.

Toxic Investment: The Exodus From Russia

Many of the world’s largest oil firms are pulling out of Russia or deferring new investments in exploration and development projects.
ExxonMobil said on Tuesday that it was abandoning its last project in Russia, Sakhalin-1, which was characterized as “one of Russia’s largest single international direct investments.”

The project was operated by an Exxon affiliate, and the company’s decision to exit Russia after more than 25 years would mark the end of the company’s involvement in the country.

BP, Shell, and Norway’s Equinor all said this week that they plan to quit their Russian operations, which would cost them billions of dollars. TotalEnergies, a French energy company, has ceased fresh investment.

Energy Prices Spike Natural Gas 60 Oil The Highest Since 2014

 

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