Friday, 20 May, 2022

Oil, gold prices steady

NEW YORK: Oil prices and gold stabilised while stock futures climbed after the US imposed sanctions on Russia but stopped short of targeting its energy industry. Prospects of a breakthrough in nuclear talks with Iran also eased market pressure.

Brent, the global benchmark for two thirds of the world’s oil, traded 0.66 per cent lower at $96.20 a barrel at 2.34pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, fell 0.85 per cent to $91.13 a barrel, report agencies.

The sanctions described as part of a first tranche of measures against Moscow were not as strong as some analysts had expected. US stock futures and shares in Asia rose on Wednesday after the US and its allies including Germany and the UK sanctioned Russia, including halting the opening of the Nord Stream 2 gas pipeline.

Brent surged to just 50 cents below the $100 per barrel mark on Tuesday after Russian President Vladimir Putin recognised the Kremlin-backed separatist regions of Donetsk and Luhansk as republics and said he would send “peacekeeping forces” to protect them.

Calling Russia’s decision an invasion, US President Joe Biden announced punitive measures against two Russian banks, the sale of the country’s sovereign debt abroad and some of Russia’s richest people. “These sanctions look rather mild. It also seems that Washington does not intend to employ the full panoply of sanctions at its disposal,” Charles Henry Monchau, chief investment officer at Switzerland-based Bank Syz, said.

“We do not see any reason to panic at this stage … we might actually get close to ‘peak fear’ on this crisis and there is a high probability that tensions will start to abate from here on.”

The softer-than-feared sanctions somewhat helped lift market sentiment, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“The risk appetite is limited, of course, except in some key assets including oil and commodities,” she said.

Rising tensions drove commodity prices including wheat and nickel higher on Tuesday.

Russia accounted for about 12 per cent of global crude oil exports in 2020 and about 10 per cent of total oil product exports, according to Emirates NBD. It supplies 25 per cent of the world’s natural gas exports and is also a major producer of industrial metals.

It is the third-largest source of mined nickel ore and a major supplier of palladium and aluminium to global markets. Russia also accounted for 17 per cent of global wheat exports between 2020 and 2021, and more than 10 per cent of feed grains such as barley.

European indexes on Tuesday recovered from early losses, however, US equities suffered heavier declines, with the S&P 500 closing 1 per cent lower at the end of trading, while the Nasdaq fell 1.2 per cent and the Dow Jones fell 1.4 per cent.

“Some of the risk-off sentiment that started the day abated through the session yesterday as greater clarity over the scope and scale of Western sanctions against Russia became clearer,” Khatija Haque, head of research and chief economist at Emirates NBD, said.

Despite US stocks recovering and markets in Asia higher on Wednesday, the risk of a shock to equities and commodities remains.

“I have no doubt that Russia-Ukraine [conflict] still has the potential to deliver a stagflationary shock to the rest of the world if it escalates and oil prices spike to above $130 a barrel,” Jeffrey Halley, senior market analyst, Asia Pacific at Oanda, said.

Despite lingering worries of supply disruptions, Opec+ ministers have pushed back against the idea of increasing output at a faster pace when they decide April output levels next week.

The International Energy Agency said it is monitoring with “growing concern” Russia’s recent statements and actions, and their potential implications for energy markets.