HONG KONG, March 22, 2022 (BSS/AFP) - Oil prices extended their rally
Tuesday on supply worries as European leaders debated banning imports from
Russia, though equities stood their ground despite a tepid Wall Street lead
and the prospect of a sharper hike in US interest rates.
Both main crude contracts started the week by soaring more than seven
percent Monday as EU nations discussed following Washington and putting an
embargo on Russian energy imports for its war in Ukraine.
Some members are pushing to ramp up pressure on Vladimir Putin with more
sanctions over his invasion, though others including Germany -- which still
relies on Moscow's fuel -- have been reluctant to target the key sectors.
Adding to upward pressure on oil was a warning from Saudi Arabia that
Yemeni rebel attacks on its oil facilities pose a "direct threat" to global
supplies, after Red Sea facilities belonging to oil giant Saudi Aramco were
targeted.
The surge in oil prices has been a key driver of turmoil on world markets
in recent weeks as demand surges owing to economic reopenings just as
supplies are strained. That, along with a spike in the cost of other key
commodities such as metals and wheat caused by the war, has sent inflation
rocketing and caused a headache for central banks already trying to wind down
pandemic-era monetary policy.
"It seems energy traders are growing more confident that supply shortages
are just around the corner," warned OANDA's Edward Moya.
"China's decision to avoid broad lockdowns is also helping oil prices as
the short-term crude demand hit should be temporary. The oil rollercoaster
ride remains a geopolitical trade and right now it seems the risks are
growing and that could push crude prices higher."
There is a growing fear that the global economy could endure a period of
stagflation in which prices soar by growth stalls.
And the Fed chair Jerome Powell on Monday indicated the bank could hike
rates at a faster rate to keep a leash on inflation, less than a week after
it announced what is expected to be a number of increases this year.
"I sense that the Fed might well deliver 50 basis point hikes in both May
and June as policymakers recognise it will be tough to get inflation down
without higher unemployment," said SPI Asset Management's Stephen Innes.
"So as long as multiple 50 point hikes remain on the... agenda, stock
markets could remain nervous."
And Moya added that traders were recognising that rates were likely to
shoot up quicker than they had expected, which "could eventually lead to a
taper tantrum which might happen alongside stagflation".
"Monetary policy is still accommodative for now, but that could quickly
change if the Fed delivers a couple supersized rate hikes by the summer."
Still, while Wall Street ended on a negative, equities remained resilient
in Asia.
Hong Kong was back on the rise after last week's blockbuster surge as
Chinese authorities reiterated a pledge to support markets and the stuttering
economy.
Tokyo returned from a long weekend to pile on more than one percent,
helped by a drop in the yen to a new six-year low against the dollar, which
helps exporters.
Shanghai, Sydney, Seoul, Manila, Jakarta and Wellington also rose, though
Singapore and Taipei struggled.
China Eastern Airlines sank six percent in Shanghai and four percent in
Hong Kong after one of its jets crashed in China carrying 132 people, having
dropped more than 20,000 feet in just over a minute.
- Key figures around 0230 GMT -
Brent North Sea crude: UP 2.8 percent at $118.84 per barrel West Texas
Intermediate: UP 2.4 percent at $114.81 per barrel
Tokyo - Nikkei 225: UP 1.6 percent at 27,242.88 (break)
Hong Kong - Hang Seng Index: UP 0.8 percent at 21,390.52
Shanghai - Composite: UP 0.1 percent at 3,256.03
Euro/dollar: DOWN at $1.0994 from $1.1013 Monday
Pound/dollar: DOWN at $1.3144 from $1.3156
Euro/pound: DOWN at 83.65 pence from 83.67 pence
Dollar/yen: UP at 119.88 yen from 119.47 yen
New York - DOW: DOWN 0.6 percent at 34,552.99 (close)
London - FTSE 100: UP 0.5 percent at 7,442.39 (close)
