Pre-market stocks: Oil prices are falling as economies show signs of crisis

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Oil prices may have met their competition – for now, at least.

The crude futures fell again, sinking nearly 3%. After reaching $ 140 a barrel in early March and reaching $ 120 two weeks ago, Brent Futures has almost fallen in a straight line and now sits above $ 100. American oil has not been $ 100 a barrel for almost a week.

What happened? The world economy is reaching higher prices, and investors are getting the case of butterflies.

Shanghai and other Chinese cities are under lock and key as Govt cases increase. That means millions of people in the world’s second largest oil consuming country do not drive or fly.

Things did not help: China’s consumer prices rose 1.5% in March, driven by (what else) fuel and food prices.

“The rise of the Govt cases … and the rise in oil prices in the midst of the Russia-Ukraine conflict have obscured China’s overall growth outlook,” said Kharki Rao, an economic research analyst at GlobalData.

Meanwhile, the risk of recession is increasing in other major economies. According to the National Bureau of Statistics, the UK economy is in a recession, with growth of only 0.1% in February as construction and production went upside down. This was below the expectations of economists and had a worrying effect: a return to normal life after Omigran was expected to boost the UK economy. Now, the war and the revolving cost-of-living crisis in Ukraine threaten to send it in the wrong direction.

Stagnant economic growth and rising inflation may be a toxic combination, affecting central banks’ ability to control prices. If they raise rates too high or too fast, policymakers run the risk of pushing the economy into recession.

What else: The worst economic shocks weigh on oil. But that is not the only reason for the fall in prices.

Western nations have promised to unleash an unprecedented 240 million barrels of emergency oil on the market in the coming months. Biden management is releasing one million barrels a day from the U.S. Strategic Petroleum Reserve for the next six months. Other countries are contributing another 60 million barrels from their reserves as part of a draw coordinated by the Paris-based International Energy Agency.

The IEA said Russia could be forced to reduce its production by 3 million barrels a day from this month as it struggles to find buyers after occupying Ukraine.

“The release of strategic government oil reserves should ease some market tightness in the coming months and reduce the need for rising oil prices to trigger a time-consuming catastrophe,” UBS strategist Giovanni Stanovo told investors Monday morning. . “Some market austerity caused by the self-approval of Russian crude buyers – for fear of future sanctions or for reputation reasons – should be eased.”

Still, the market is well balanced, and OPEC + nations have so far refused to pump much oil. U.S. oil companies are reluctant to reopen Spicodes, remembering the amount of money taken when prices fell in the early days of the epidemic.

UBS lowered its near-term oil forecast by $ 10 a barrel, but it still predicts that Brent will reach $ 115 a barrel by June.

In other words: high oil prices are here to stay. Until it falls down from the economy.

Remember the Arab Spring 2011? People in North Africa and the Middle East fought for freedom and social justice. But they also took to the streets as food prices soared.

Inflation has returned and there is social unrest. Over the past week, protests have erupted around the world, from Sri Lanka and Pakistan to Peru. Economists have long been concerned that rising prices in endangered countries could lead to violence.

Pakistani Prime Minister Imran Khan was ousted from office on Sunday as double-digit inflation eroded the little support he had left. At least six people have been killed in recent protests in Peru over rising fuel prices.

Food prices soared in the wake of the Arab Spring. The Food and Agriculture Organization of the United Nations (FAO) food price index reached 131.9 in 2011. The index reached 159.3 in March, up almost 13% from February.

The Ukraine war and sanctions on Russia did not help. Ukraine is a major exporter of wheat, corn and vegetable oils, and prices of those commodities have risen in the past month as Russia’s invasion prevented that supply from leaving the country.

This particularly affects countries that are already struggling with food insecurity and hunger problems. Forty percent of wheat and corn exports from Ukraine go to the Middle East and Africa, says Gilbert Hungbo, head of the International Fund for Agricultural Development.

You would think that Russia would be a barrier to trade at this time. But Russian bonds continue to trade furiously, says my colleague Nicole Goodkind.

Russian bonds were quickly scrapped after the country invaded Ukraine and became a global scapegoat. Nevertheless, speculators are interested in their bargain-base prices and high yields, according to Philip M. Snyder, an expert on social responsibility in Russia and business and a professor at the University of Pennsylvania’s School of Warden. According to Nichols.

“A lot of speculators are buying these bonds, which have been severely downgraded,” Nichols said.

Buying a Russian sovereign loan is legal, if at all risky, Nichols said. Russia has no guarantee of repayment to its bonds, and the cost of insuring Russian bonds is astronomically high.

Just in: S&P slapped Russia on Friday with a “select default” rating.

Yet those risks have not deterred some Wall Street investors – nor the fact that Russia is committing atrocities in Ukraine. Even if investors want to get out of risky bets on Russia, they still have to sell to someone.

Who makes that business easier? American financial institutions such as JPMorgan Chase.

“This is Wall Street,” said Kathy Jones, chief sustainable income strategist at the Swap Center for Financial Research. “I’m not surprised they saw some kind of hole they could use to make money.”

JPMorgan representatives claim that they act as intermediaries, simply looking to help clients.

The US Consumer Price Index, a closely watched inflation report, will be released on Tuesday morning.

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