Oil Rebounds on Escalating Geopolitical Tensions

Twitter jumped 27% in a single move on the news that Elon Musk took a 9.2% stake in the company. The jump in Twitter shares gave an energy boost to the US equities, especially to the technology stocks. Nasdaq jumped 1.90%, while the S&P500 gained 0.80% and Dow Jones added a slim 0.30%.

But news regarding the war and oil prices were less encouraging.

Potential sanction on Russian energy boosts oil prices

EU leaders will reportedly meet tomorrow, and the additional sanctions could include more action on Russian oligarchs, more exports restrictions, an eventual port ban on Russian ships, and a potential ban on Russian energy exports.

If leaving the Russians without Big Macs, Starbucks coffees, or Nike shoes hasn’t been effective in discouraging Putin from ending the war in Ukraine, banning the Russian energy imports should make a difference, yet it would also mean a severe energy crunch in Europe , and a big hit to economic growth.

But, not everyone is scared. Lithuania has become the first European country to announce a total ban on Russian gas imports, and the possibility of other nations joining Lithuania in banning Russian oil and gas gives a boost to oil bulls.

US crude quickly bounced above the $100 mark yesterday on escalating tensions in Ukraine while many questioned the US ability to bring a million barrels of oil per day into the market for six months, pointing at the ‘sour’ crude quality that refineries may not want to buy, and the logistical constraints. As a result, the news of US strategic release and pandemic couldn’t pull the price of a barrel sustainably below the $100pb mark, strengthening support at this level.

Gold, support by geopolitical escalation, pressured by rising yields

Gold remains under the pressure of rising US yields. The yellow metal is bid above the $1900 mark as the war uncertainties keep the safe haven demand tight. Medium-term risks remain tilted to the downside as even a risk selloff may not easily benefit to gold, if the selloff is due to rising US yields.

Yet, renewed geopolitical tensions boost appetite in gold, and the fact that the West prepares to announce new sanctions against Russia on horrifying images of attacks against civilians should throw a floor under a selloff below the $1900 in the short run.

Macro

US factory orders fell for the first time in ten months on supply constraints, the PMI data will give a hint on the European activity levels amid war in Ukraine, and the Reserve Bank of Australia (RBA) kept its policy rate unchanged at the historical low of 0.10% for the sixteenth consecutive month.

Yet, the Australian policymakers dropped the ‘patient’ pledge in their accompanying statement, meaning that if inflation rises fast – and it probably will, the RBA could start raising rates in the next couple months, as well.

The Aussie rebounded more than 9% against the US dollar since the beginning of February, as iron ore prices jumped due to the Ukraine war. The RSI indicator hints at overbought market conditions as the currency may have gained too fast in a too short period of time. A short-term correction could therefore be healthy at the current levels. But the medium-term outlook remains positive for the Aussie, as long as commodity prices remain supported by geopolitical threat to the supply.

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