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The US stock market is worried about the rising oil prices
The sudden surge of oil prices to above $100 per barrel has rattled U.S. investors. They are preparing for a sharper increase in energy costs that could further harm equities and stymie the economy. Investors continue to gauge the economic and market impact of the recent attacks on Iran. The U.S. oil price has risen by 50% to its highest level for more than three-years. Michael Reynolds, Glenmede's vice president of investment strategies, said: "It is a shock." "It is out of left-field, and people are trying to understand what it means as it unfolds." The Federal Reserve may be hesitant to lower interest rates if the Federal Reserve is concerned about rising inflation. Higher gas and oil prices will increase costs for energy-intensive businesses, reduce discretionary budgets and erode consumer discretionary spending. MARKET CORRECTION OR WORSE? Reynolds and other investors scrambled to come up with scenarios in case oil reached heights not expected just a few days before. Investors have noted that U.S. crude and Brent crude both broke through $100 a barrel on Monday. This level could cause more stock turbulence. At one point on Monday, the commodities were close to $120. U.S. crude oil settled at $67.02 in the last session of the U.S. - Israel strikes on February 27. Stock volatility has also risen. On Monday, the Cboe Volatility Index topped 30 for nearly a full year. It was below 20 in late February. The S&P 500 benchmark was down nearly 4% since its all-time high in late January, after paring earlier steeper declines in Monday's trading session. Last Tuesday, strategists at Yardeni Research predicted a 10% correction in the stock market. In a Sunday note, the firm stated that "we can't rule out" a bear-market and even a possible recession. OIL AND STOCKS - A Tighter Link Oil prices are rising and the movements have become more closely linked to the stock market. According to LSEG, the 20-day correlation of S&P 500 with U.S. Crude stood at -0.813 on Monday morning. This is a strong inverse relation that shows a tendency to move 'in opposite directions. The strategists at Deutsche Bank, who are watching to see if the Iran situation will?prompt an even larger risk-off movement, stated in a Monday note that the oil shock is "among the most serious in history," however, investors have priced in a "short rather than a protracted conflict." Stock investors, who typically think of oil and stocks as two separate markets, have historically followed oil's price trajectory closely, particularly after extreme price movements. Stock prices fell in early 2022 after oil prices jumped to $120 per barrel. This was due to the outbreak of conflict in Ukraine. Stock investors were concerned in 2015-2016 that the low price of U.S. Crude Oil, which dropped below $30 per barrel, was a sign for a general economic slowdown. Pain at the Pump for Consumers The focus is once again on the economic implications of rising oil costs. According to JPMorgan's economists, each 10% increase in oil prices will translate into a drag of 15 to 20 basis points on the GDP growth. The JPMorgan economists stated in a recent note that the effects could also be non-linear. Higher oil prices spikes would result in an even greater hit to growth. JPMorgan's economists and analysts warned that the economic impact would likely depend on how high crude prices remain. Currently, crude oil prices are rising. According to AAA, the national average price of gasoline increased to $3.48 a gallon Monday. It was $2.902 per gallon a month earlier. The group stated that this is "the highest level seen since summer 2024". Kevin Gordon, Charles Schwab's head of macro-research and strategy, said that oil prices were "as visceral" as filling your gas tank. In fact, the shares of companies that are most dependent on discretionary expenditures could be among those most susceptible to rising oil prices. Morningstar says that fuel costs for airlines account for 20 to 25 percent of their unit costs. The S&P 1500 index for passenger airlines is down 15 percent since the war began. One HEADLINE away from a Reversal? Higher oil prices can benefit certain parts of the market. Since late February, the S&P 500's energy sector has gained 1% while the broader S&P 500 fell over 2%. Some investors are concerned that the situation can change at any time. Raymond James Chief Investment Office Larry Adam stated in a?note on Monday that the firm expects the conflict will be "relatively brief." The firm's price target for U.S. Crude at the end of the year was $55 to $60 per barrel. Investors also pay attention to how Donald Trump, the U.S. president has shifted course in his tenure on policies that are market-sensitive. His softening of the blanket "Liberation Day", tariff policies in April last year was a major factor that led to a rapid rebound in asset prices. Gordon stated that "we're just one ceasefire agreement headline from this all reversing aggressively," (Reporting and editing by Colin Barr; Additional reporting by Chuck Mikolajczak, Siddharth Cavale and Lewis Krauskopf)
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How could Trump combat the rise in oil prices?
U.S. president Donald Trump will review a number of options as soon as Monday to tame the oil prices. They have soared since 2022 due to the U.S. and Israel?war against Iran. Some options could spark domestic and international opposition. The stakes are very high. The stakes are high. Here are some options that?Trump? could choose from: SALE OF OIL FROM STRATEGIC OIL RESOURCES Trump can order the sale of oil in the U.S. Strategic Petroleum Reserve, and coordinate with partners and allies on a worldwide release. The goal would be to lower prices by increasing the supply. SPR in the U.S. currently has more than 415,000,000 barrels. This is more than four full days of oil consumption worldwide. The SPR is at its lowest since the mid-1980s, after Trump's predecessor Joe Biden sold more than 200,000,000 barrels of oil in 2022, when Russia invaded Ukraine. Fatih Birol, the head of the International Energy Agency (IEA), told G7 Finance Ministers on Monday that IEA member countries hold over 1.2 billion barrels in public emergency oil reserves and a 'further 600,000,000 barrels are industry stocks under government obligation. The IEA has called for a coordinated oil release, and the G7 nations have agreed to closely monitor energy market developments. There has been no release yet. In the Strait of Hormuz, what is the insurance for a tanker? Around 20% of daily world oil consumption transits the Strait of Hormuz, off the coast of Iran. Marine insurers have cancelled war risk coverage due to the conflict, which has led to a halt in most tanker traffic. The U.S. announced on Friday that it would offer up to $20 billion of reinsurance to tankers who have anchored in the narrow waterway. Analysts say that the plan is limited in its ability to solve the problem. JPMorgan Chase analysts have said that the insurance programs are far too small. They estimate the need to be about $352 billion. The administration has claimed the analysis was flawed. Analysts say that ship owners are more concerned about the real security risks. Shipping officials say they don't expect to see a large-scale return of oil flows in the Strait until after the war. TAX HOLIDAY Waiving federal taxes could help reduce the price of gasoline. The U.S. government charges 18.4 cents for each gallon, and more for diesel. The full amount would save a little more than 5% on the average national retail price for gasoline, which is $3.48. This move will also reduce funding for the Federal Highway Trust Fund, which pays highway maintenance and mass transportation. WAVE RULES ON FUELS The U.S. may temporarily suspend the pollution regulations on fuels that add to the price of gasoline. Pump prices may fall if refiners pass on the savings. Refiners in the United States are preparing to produce summer-grade gas and other fuels, which produce less pollution during warm weather. These blends cost more to produce but the savings from a relaxation of rules will be modest. In 2024, a U.S. Energy Information Administration report suggested that refinery restrictions tied to summer gas production could cause retail prices to rise by around 10 cents per gallon in tight market conditions. The communities that are concerned about the effects of more pollution-causing gas formulations may be enraged by the easing of the pollution regulations. EXPORT RESTRAINTS The White House may impose restrictions or a ban on U.S. crude oil exports and other fuels, such as gasoline, in an effort to lower prices for consumers at home. Top energy industry groups have opposed such a?move in times of energy shortages, like after Russia's invasion in Ukraine in 2022. Biden didn't impose these restrictions. A similar move is not clear. The U.S., the world's biggest oil producer and net exporter, is not equipped to refine U.S. crude grade. This means that they will still have to import it from abroad. ELIMINATE SANCTIONS on more Russian oil U.S. Treasury secretary?Scott Bessent stated on Friday that the U.S. may ease further sanctions related to Ukraine on Russian oil in order to increase global supply. His comments came just a day after Washington granted India a 30-day waiver to allow it to purchase Russian crude oil currently stranded on the sea. If done long-term, it could be criticized for helping Russia fight Ukraine. WAIVE THE JONES ACT The Trump?administration may temporarily waive the Jones Act. This law requires that all cargo transported between U.S. ports be carried by tankers made in America using unionized labor. The law's repeal could allow companies to have more flexibility when transporting oil from the Middle East to U.S. coast refineries. This includes being able to hire cheaper ships without unionized labor. The law is more than 100 years old and has broad support from unions across the country. This could make it politically sensitive. Futures Market A White House official revealed last week that the U.S. had considered trying to control oil prices via financial markets, such as futures contracts. There were few details on how this would work.
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LME will consider replacing warehouse rent cap with fixed daily loading rates
London Metal Exchange announced?on Monday? that the existing limits on'rent' charged by its warehouse network?could be replaced with a daily fixed rate of load-out. The LME may require that daily, 1.5% of the metal in its warehouses be loaded onto warrants - title documents conferring ownership. The current system reduces rent to 'zero' if a storage facility fails to deliver the metal required within 80 days. The consultation is open until May 8 and will look at exempting cancellations over 10,000 metric tonnages from the 1.5% requirement. This would ensure that larger warehouses do not feel discouraged from accepting more metal. When the owner plans to withdraw metal from LME's?system, warrants are canceled. Early 2025, it was reported that the LME would launch a consultation to "revise its storage rules" to "address warehouse gridlock". The exchange announced on Monday that it would also freeze rent and cap rates of free-on truck charges for another five years, from April 2027 until March 2032. The LME charges a fee called FOT (free-on-truck) to prepare metals for truck transport. Rent capping failed to prevent queues when large quantities of metal were?cancelled' for delivery. AUDITING REQUIREMENTS LME said that it would also like to hear opinions on whether "evergreen" rental deals should be discontinued. A company that places metal in an LME storage facility on warrant is entitled to a portion of the rent collected by the new metal owner. The consultation will also include a proposal that auditing requirements be extended to all warehouse operators. The current requirements only apply to warehouse companies with close ties to a?LME trading entity. The LME stated that it believes that forcing all warehouses to audit their barriers to information would be a good way to ensure?confidentiality in stock information. The consultation will also review the need to store aluminum indoors, and look at introducing a requirement for a copper certificate of analysis. Copper is currently the only metal that does not require one when placed on warrant. Reporting by Tom Daly, Pratima Deai and Jonathan Ananda; Editing Diti Pujara
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Dubai Gold Trades at Discount to London Due to Flight Disruptions
Analysts and traders say that gold in Dubai trades at a lower price than in London due to flight restrictions caused by the conflict in the Middle East. Demand is also subdued because of the uncertainty over the length of the war. The U.S. and Israeli war against Iran has caused widespread cancellations of passenger flights across the Middle East. This has disrupted the flow of gold through Dubai, a major trading hub that supplies Switzerland, Hong Kong, and India. A Dubai-based dealer said, "The market is still at a discount. However, in thin trade, the variations are wide. They range from $10 to $30 an ounce." The dealer said that demand is low in India, which is a major consumer of bullion, as well as the Middle East. Price volatility is also causing buyers to put off purchases. Spot gold prices in London are down by 6% from the initial spike that occurred at the beginning of the conflict, on February 28. Bullion prices were last $5,109 for a troy ounce while oil prices rose. Nicky Shiels is the head of metals strategy for MKS PAMP. He said that there are still many unknowns, including conflict duration, escalation, and macro inflation. Gold also faces more volatility. Shiels said, "Loco Dubai Gold's trading at a discount to London is telling as the 2011 Arab spring?saw steep discounts in the region." Analysts at Heraeus say that the markets' reaction to the conflict in Middle East was?less extreme? than thought. This could imply?that there is a consensus view that the conflict will not last long. Analysts noted that when Russia invaded Ukraine in February of 2022, gold prices rose for two weeks, but then retreated. The year ended with little change as the sideways trend took hold, they added. Reporting by Rajendra J. Jadhav, Polina D. Devitt and Diti P. Pujara.
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In coordinated raids in northeast Nigeria, 15 militants islamists are killed
Residents and military sources said that Islamist militants have killed at least 12 soldiers in coordinated attacks in the northeast of Nigeria. The attacks against armed forces are intensifying. Aid groups report that a 17-year Islamist rebellion in the?the?region has resulted in thousands of deaths and 2 million displaced people, despite major campaigns. The attacks in Kukawa and Dalwa, as well as Goniri, came just days after an attack on a military post in Ngoshe. This shows the ability of militant groups to strike multiple fronts at once. Boko Haram fighters and Islamic State West Africa Province, (ISWAP), swept into Kukawa District in Borno State before dawn on Monday. They pushed towards the nearby camp in a 3-hour battle. A?military?source' said that troops retook camp, but not before killing the commanding officer as well as five other soldiers. Karta Maina ma'aji Lawan confirmed the attack and the death of the officer. Shetima Isa, resident and traditional leader in Dalwa, reported that militants had allegedly killed two soldiers, three residents and set more than 250 houses ablaze. Another soldier reported that insurgents attacked the Goniri base of the Yobe state neighbour, killing four soldiers, and setting buildings and vehicles ablaze. Sani Uba, a military spokesperson, said that troops had repulsed several coordinated attacks against?military locations in the northeast and that all areas remained under firm control. Uba stated that "unfortunately, some brave and gallant soldiers, including an outstanding Kukawa officer, paid the ultimate cost" in the engagements. He said that ground forces were accompanied by air support in conducting follow-up missions in the affected area, and cordon-and search missions were continuing?in nearby village where wounded militants are reported to be hiding. Nigerian military raids have increased this year in an effort to renew the offensive against the insurgents. However, ISWAP and Boko Haram are continuing to exploit the difficult terrain, porous borders, and thin state presence throughout the northeast. The latest attacks occurred just hours after military analysts had warned that an ISWAP attack was likely. (Reporting and writing by Ahmed Kingimi, Elisha Gbogbo, Editing by Andrew Cawthorne).
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Aluminium reaches four-year highs due to Middle East shipping disruptions
Aluminum prices reached four-year-highs on Monday as fears about prolonged shipping disruptions due to the U.S./Israeli war in the Middle East fueled a concern over supplies of the metal. Benchmark aluminium was down?1.5% to $3,394 per metric ton by 1711 GMT, from $3,544 earlier. This is the highest price since March 2022, when the metal prices for transport, construction, and packaging reached a record of $4,073.50. The conflict in the Middle East virtually closed the Strait of Hormuz, through which aluminum produced in that region is shipped to the U.S.A. and Europe. Ed Meir, Marex analyst, said that the Europeans were particularly worried by this Gulf Aluminum stoppage as it coincides with Mozal's planned shutdown in October. "Some producers want to draw down stock from outside the area to fulfill their obligations. But?we suspect that this will be difficult due to the high concentration of Russian metals on the exchange, which are currently sanctioned. And the low levels of inventories in general." In December, South32 said its 560,000-metric-ton-per-year capacity Mozal smelter would be placed on care and maintenance from mid-March, after talks with utilities and Mozambique's ?government failed to yield a new power deal. Concerns about supply have turned the contango or discount for the cash aluminum contract?over the next three months into a premium. On Friday it climbed to $47.4 per tonne, its highest level since February 2022. It was previously around $22 per tonne. The prices of aluminium on the curve of?maturity going out to 2036 have been backwardated. The soaring?oil prices have also impacted the demand for industrial metals, as well as the dollar's strength. Copper rose?0.6%, to $12,943 per ton. Zinc rose 0.9%, to $3,327. Lead fell 1%, to $1,933. Tin rose 0.3%, to $50,235. Nickel lost 0.5%, to $17.385. Reporting by Pratima Dasai. Mark Potter, Tomasz Janowowski and Mark Potter edited the article.
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Putin: Energy crisis is here, Russia ready to cooperate with Europe
On 'Monday, Russian President Vladimir Putin stated that the Iran War had triggered a global crisis of energy and warned that oil production that relies on the Strait of 'Hormuz for transport could come to an end soon. Putin has signaled again, however, that Russia is ready to provide oil and gas to Europe. Russia is the second-largest oil exporter in the world and has the largest natural gas reserves. Putin stated that, at a meeting with Russi's top oil and gas producers and government officials, Moscow was willing to work with European clients again, if they wanted a return to non-politicized, long-term cooperation. We have never refused to work with Europeans. We are also ready to work with Europeans. We need to hear from them that, "They are ready and willing work with us in order to ensure sustainability and stability," Putin stated. Putin said that Russian companies should also take advantage of current'situations in the Middle East. He did note, however, that the price spike was likely temporary. Oil prices topped $100 per barrel on Monday, reaching a level not seen since 2022. The Strait of Hormuz is now effectively closed, as it's one of the key chokepoints for oil transit, and the Strait of Hormuz carries about a fifth of all global oil and LNG flows.
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Back to the 70s? Investors prepare for the return of stagflation
Investors now seriously consider the possibility that a war in the Middle East may create a stagflationary shock, as it did fifty years ago when disruptions to global energy supply sent inflation soaring and harmed growth. Kaspar Hense is the portfolio manager of RBC BlueBay Asset Management. If oil prices continue to rise, the safe-haven status for government bonds, and all other assets, is at risk. Five charts show how stagflation could affect the markets. OIL IS THE KEY Oil prices are at the forefront of the stagflation debate, and now the question is: how long can they continue to rise? Brent crude soared over $100 per barrel on Monday, and is on course for its largest daily increase since the COVID crises of 2020. The price of European wholesale gas has risen by 70% since the beginning of the year. This is bad news for inflation. Capital Economics stated that "a useful rule of thumb" is that an increase in oil prices by?5% adds about 0.1 percentage point to inflation on developed markets. High oil prices could also dampen the economic growth. According to the International Monetary Fund, for every 10% increase in oil prices that persists, there will be a 0.1-0.2% drop in global economic production. The oil price spikes that occurred in 1973, 1980 1990 and 2008 contributed to the U.S. recessions. DILEMMA OF THE CENTRAL BANK Central banks are in a difficult position, since rate increases to curb inflation could undermine the economic growth. Chicago Fed President Austin Goolsbee said to the Wall Street Journal that a "stagflationary climate as uncomfortable as any could be looming" on Friday. The markets now expect at least one hike by the European Central Bank this year. Before World War II, there was a 40% probability of a reduction. The Bank of England is also expected to raise rates this year, after previously pricing at least two rate cuts. Rainer Guntermann, a Commerzbank rates'strategist, said that he believes only a decline in oil prices can reverse the rate hike fears even though dovish minds at the ECB are also pointing out downside growth risks. THE MISSING LINKERS Investors have fled fixed-income assets where inflation will erode future returns. Short-term bonds are most sensitive. The yields on two-year gilts in Britain have risen by 50 basis points over the past week. This is the biggest increase since the UK budget crisis in 2022. German and Australian yields on two-year bonds have increased by more than 30 basis points in this time period, while U.S. yields on two-year bonds are only up 13 basis points. Investors are now looking at inflation linked debt where the principal as well as the interest rate is tied to inflation. The British five-year breakeven rates, the difference between inflation linked and nominal yields, have risen by 28 basis points since February. On Monday they reached almost 3.5% - their highest level since April last year. In the meantime, five-year inflation linked Treasury yields rose by 4.2 basis points in the past week, compared to a rise of 15 basis points in nominal yields. Eyes on the US If you are wondering if the economic and market hit on the U.S. will force Donald Trump to alter his course, remember that the stagflationary impact of the war is likely to hurt the U.S. much less than Europe or Asia. Michael Every, senior global strategist at Rabobank, said in a recent note that the U.S. is self-sufficient with many of the commodities that are being choked directly or indirectly through the (Strait of Hormuz). He also mentions helium and fertiliser, both of which are important in the semiconductor industry. It is not surprising that the U.S. market has performed better relative to other markets. The S&P 500 fell 2% last weekend compared to Europe's 5.5% drop and MSCI Asia Pacific ex Japan index's?6.3% decline. U.S. Bonds also outperformed German bonds last week. The U.S. was already looking vulnerable to stagflation before the recent spike in energy prices. The economy lost jobs unexpectedly in February. Data this week will likely show an increase in U.S. Inflation. Where to hide? Investors dislike stagflation, because it damages stocks, bonds, and gold, which does not offer a yield. Analysts said that the precious metal fell?2% in value last week and again on Monday. Since the beginning of the war, the dollar has gained more than any other currency in the developed markets. Kit Juckes is the head of FX Strategy at Societe Generale. He said that "the U.S. can withstand a shock to oil prices, but there will be some political consequences." The same is not true for Europe and the UK, in particular.
UAE's UN envoy urges deescalation in US-Israeli conflict with Iran
The United Arab Emirates Ambassador to the United Nations at Geneva demanded on Monday a de-escalation in 'the U.S. - Israeli war?on Iran and a return of negotiations.
Since the beginning of the war on February 28, oil prices have risen as major producers have cut back on supplies. Stock markets have also plummeted. Iran has fired at Gulf States that host U.S. bases, disrupting travel and business.
"De-escalation, de-escalation, de-escalation. We will continue to maintain this position, which is what we are known for," said Ambassador Jamal Jama al Musharakh in Geneva.
Since the war began, Iran has been launching drones and missiles at six Gulf States including the UAE.
The ambassador stated that there have been more than 1,400 attacks against the UAE over the past few days, which resulted in the deaths of four civilians as well as the injuries of 114 others.
The envoy expressed concern over the attacks by Iran against civilian infrastructure, such as desalination plants and energy facilities. Any further strikes of this nature would be?inacceptable,' he said.
He added, "We're also prepared to protect these important locations."
Al Musharakh said that attacks on the UAE and regional neighbours violated the principle of "good neighborliness" as well as the path to finding peaceful solutions.
He said that despite the fact that his country was being attacked in an "unwarranted" manner, UAE bases would not have been used to attack Iran.
U.S. officials say Washington aims to destroy Iran's nuclear and missile programme.
Donald Trump, the president of the United States, said that he is not interested in negotiations with Tehran. He also suggested that war will end when Iran's military and leadership are no longer in place. (Reporting and editing by Timothy Heritage, Olivia Le Poidevin)
(source: Reuters)