With bans imposed on the import of Russian oil by the US and many other countries committing to phasing out the use of the country’s hydrocarbons, analysts now predict that oil prices could rise to over $185 per barrel, prompting many governments to investigate measures to address the global surge in energy prices. The US is looking to release up to 180 million barrels of emergency inventories, the biggest stockpile release on record. This boost in supply should theoretically result in a drop in oil prices, however there are questions regarding how sustainable the effect will be.
Other countries are also looking at ways to help their citizens: Ireland announced on Wednesday that they will cut the excise duty on both petrol and diesel until end of August, while Portugal will also do away with a special tax levied on fuel, as of 1 April. South Africa’s Parliament Portfolio Committee on Mineral Resources and Energy has recommended that the government introduce a ‘tax holiday’ or exemption on the country’s fuel products for a limited period, as taxes and levies make up a significant portion of the fuel price in South Africa. Meanwhile, countries like France and Brazil all still weighing up their options, as they look for ways to mitigate the impact on consumers.
These potential interventions highlight the political and economic risks that governments face as a result of the current energy price dilemma. During an interview with Reuters, oil markets analyst, Livia Gallarati, stated that the risks of energy rationing, and ultimately economic recessions, are growing by the day. In recent years, rising fuel costs have caused violent protests in many countries, including Iran, Zimbabwe and Kazakhstan, highlighting the growing risk of civilian unrest across a number of nations in the current environment.
DATA IN A NUTSHELL
The number of job openings in the United States were little changed from an upwardly revised 11.3 million in January, in line with market expectations of 11 million. The number of available jobs remained near the record high of 11.5 million set in December, as companies continued to struggle with a scarcity of labour. The US economy expanded at an annualised 6.9% quarter-on-quarter in the last three months of 2021. The economic sentiment indicator in the eurozone dropped by 5.4 points in March on a month-on-month basis, below market expectations of 109. It was the lowest reading since March 2021, mainly due to plummeting consumer confidence.
The British economy expanded 1.3% quarter-on-quarter in the last three months of 2021, stronger than initial estimates of 1%. Service industries expanded more quickly than initially expected, while exports also increased more than anticipated. The largest contributors to growth were human health and social work activities, driven by increased GP visits at the start of the quarter, a large increase in coronavirus testing and tracing activities, and the extension of the vaccination programme. The UK’s GDP is now 0.1% below its pre-COVID-19 level in the fourth quarter of 2019. Overall, in 2021, the British economy advanced 7.4%, slightly below than initial estimates of 7.5%. This rebound followed a 9.3% contraction in 2020.
US EXCHANGE ON TRACK FOR QUARTERLY LOSS
US futures were little changed on Thursday, with energy shares under pressure during pre-market hours amid a fall in oil prices, as the Biden administration pledged to make a huge reserve release. At the same time, traders continue to follow the Russia-Ukraine ceasefire talks and reassess the outlook for inflation and the direction of US monetary policy. Over the month of March, the S&P 500 and Nasdaq were up about 5% each, while the Dow was nearly 4% higher. Taking a look at the last quarter, however, the three main exchanges are on track to book their first quarterly loss in two years. The FTSE 100 posted small losses on Thursday, ending slightly below a six-week high reached during the previous session, as traders digested weaker crude oil futures and upbeat economic
data. Major oil & gas stocks, BP and Shell, traded down by 1.9% and 0.4% respectively, while British publisher, Pearson plc, climbed 1.4% after Apollo Global Management gave up its unwelcome bid to buy the company.
European stock indices faltered soon after opening on Thursday, with both Germany’s DAX and the pan-European STOXX 600 trimming early gains to trade softer. Growth concerns emerged yet again, despite some relief from a drop in oil prices. Among sectors, losses were steeper in energy, auto and retailers. On a monthly basis, the STOXX 600 headed for a 4% gain and the DAX eyed a 5% rise.
POTENTIAL STOCKPILE RELEASE DRAGS DOWN OIL PRICES
West Texas Intermediate (WTI) crude futures dropped more than 5%, to below $102 per barrel, on Thursday, following reports that the Biden administration is considering a plan to release around one million barrels of oil per day for about six months from US reserves. Meanwhile, the expanded Organisation for Petroleum Exporting Countries, OPEC+, agreed to raise its output targets by 432,000 barrels per day, as of 1 May, as expected. The move comes as US crude stocks fell by 3.4 million barrels last week, a much bigger drop than the one-million-barrel drop forecast. US crude prices are heading for a fourth consecutive month of gains, having hit their highest levels since 2008 at almost $126.42 per barrel on 7 March, as demand recovery from the pandemic gathers pace and the war
in Ukraine further squeezes an already tight market.
Gold hovered near $1,930 an ounce on Thursday, making its way towards a quarterly gain of over 5%, the most since the three months to September 2020, as the Russia-Ukraine conflict has boosted its safe-haven appeal. Analysts have suggested that aggressive bets for a faster pace of US Federal Reserve (the Fed) tightening may have been scaled back, as markets have already priced in bigger rate hikes, and fears of a possible recession have added uncertainties to the economic outlook.
Newcastle coal futures fell to below $300 per tonne, as demand in China eased and prices of other energy commodities moderated. The latest coronavirus-induced restrictions in China, particularly in Shanghai and Tangshan, hurt demand and led to increased inventories at mines. Still, coal prices have almost doubled since the beginning of 2022, while gaining 170% year-on-year, fuelled by supply constraints in the energy market due to the Russia-Ukraine war, floods in Australia, and a partial ban of exports from Indonesia.
PEACE TALKS BOLSTER EURO
The US Dollar Index held below 98 on Thursday after sliding in the past two sessions, as reports of progress in peace talks between Russia and Ukraine prompted a sharp gain for the euro while dampening the greenback’s safe-haven appeal. Investors now await critical US economic data, including the March jobs report on Friday, to gauge the direction of monetary policy. Markets have been recalibrating the increased possibility of a 50 basis point rate hike in May, following hawkish comments from several policymakers last week on the back of runaway inflation.
The euro strengthened to its highest level against the dollar in a month, breaking above $1.116 amid hopes of progress in Russia-Ukraine peace talks and expectations of higher interest rates. Russia’s deputy defence minister, Alexander Fomin, claimed that Moscow decided to cut back its military activity near Kyiv in a bid to aid peace talks. These remarks came after Ukraine President, Volodymyr Zelenskyy, reiterated that his country is prepared to adopt a neutral status as part of a peace deal with Russia. In addition, roaring inflation has led investors to bet that the European Central Bank will end its era of negative rates sooner than previously anticipated.
The British pound changed hands at around $1.31, its lowest level since November 2020, as investors await further clues on the UK’s next monetary policy steps. The BoE delivered its third straight rate hike in March, bringing borrowing costs to pre-pandemic levels. Policymakers warned that inflation, currently running at 30-year highs, could see inflation increase further to around 8% in the second quarter of 2022, and perhaps even higher, later this year. BoE Governor Andrew Bailey said that the shock to inflation-adjusted incomes in Britain from rising energy prices will be larger than any single year in the 1970s, the decade considered the standard-bearer for inflationary pressures in the country.
The pound started the day trading at 1.3134/$ and 1.1850/€.
Written by Citadel Global Director, Bianca Botes.
© Peregrine Wealth Ltd
This publication has been compiled for information purposes only and does not take into account the needs or circumstances of any person or constitute advice of any kind. It is not an offer to sell or an invitation to invest. The information and opinions in this publication have been recorded by Peregrine Wealth Ltd in good faith from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness. Peregrine Wealth Ltd accepts no liability whatsoever for any direct, indirect or consequential loss arising from the use of this publication or its contents. Peregrine Wealth Ltd (registration number 39538) is licensed by the Guernsey Financial Services Commission.