The Lowdown Hub

Energy prices surge and shares fall as US discusses Russia oil banCrude hits highest level since 20

The prospect of expanded sanctions aimed at Russian oil has raised the threat of higher inflation © Reuters

Oil prices soared on Monday to more than $139 a barrel after the US said it was in “active discussions” to ban Russian crude imports, while the threat of an economic shock in Europe dragged down stocks and the euro.

The jump in the international crude oil benchmark Brent marked an almost 20 per cent rise from its settlement price on Friday, taking it to its highest level since the 2008 financial crisis.

European wholesale natural gas prices also shot higher, with futures jumping to a new record of €345 a megawatt hour from about €193 on Friday — a rise of almost four-fifths. A year ago, the price stood at about €16. Both rallies later moderated, but investors say the rapid ascent of oil and gas prices poses particularly severe risks to the neighbouring European economy.

“Russian exports are too big to be substituted. Moreover, the US shale miracle has ground to a halt after years of under-investment,” said Louis Gave of research house Gavekal. “In short, without Russian oil and gas in the world markets, prices will keep shooting up.”

The shifts came after Antony Blinken, US secretary of state, said Washington was in “very active discussions” with European allies over an oil ban in the wake of Russia’s full-scale invasion of Ukraine.

Europe’s Stoxx 600 share index, which last week dropped 7 per cent in its worst performance since March 2020, had lost a further 1.1 per cent by midday on Monday.

“Basically, the further away a company is geographically from Ukraine, the better,” said Marcus Poppe, co-fund manager of DWS Top Dividende.

Fears of sanctions — and the ensuing effect on already record high levels of inflation in the eurozone — have jolted equity investors, analysts said.

“While the market had assumed sanctions would be somewhat toothless, we now see the US administration will go to some lengths to punish Russia,” said Altaf Kassam, head of European investment strategy at State Street Global Advisors.

“It’s going to be hard for central banks to do what they have conventionally done, which is cut rates to backstop the market,” Kassam said.

Futures contracts tracking both Wall Street’s S&P 500 and the technology-heavy Nasdaq 100 dropped about 0.7 per cent, after heavy losses for Asian equities earlier in the day.

Asked about Blinken’s comments, a senior French official said further sanctions were being examined by European and “other” partners, without detailing how advanced the discussions were.

“The question today is to see how we can resort to strategic reserves to stop prices from spiralling even further on oil and gas markets, and also, in the longer term, how we manage our stocks and our supplies,” the official said.

British officials are not ruling out a total ban on Russian oil imports but one described the idea as “a drastic move”. Liz Truss, UK foreign secretary, has asked officials to explore a “ceiling” on Russian energy imports that would fall over time, mitigating the likely economic shock.

In Europe, Germany’s Xetra Dax fell 2 per cent, while Spain’s Ibex share index lost 1.4 per cent. The Stoxx sub-index of European bank shares dropped 3.3 per cent and is down by more than a quarter since the week ending February 18. London’s FTSE 100 dropped 0.6 per cent.

The yield on Italy’s 10-year bond rose 0.06 percentage points to 1.58 per cent as the debt instrument fell in price to reflect concerns about slowing eurozone growth reducing the fiscal support available for its financially weaker nations.

In currencies, the dollar index, which measures the US currency against six others, hit its highest point since May 2020. The euro fell 0.5 per cent to $1.09, also its weakest level against the dollar since May 2020. The rouble weakened to as much as Rbs138.5 against the dollar, marking a record low for the Russian currency.

The spot gold price breached $2,000 for the first time since August 2020 in Asian trading as investors sought shelter from market risk in the haven asset.

Palladium, a key component of catalytic converters in cars, jumped 9 per cent to more than $3,280 an ounce. Wheat futures rose 7 per cent to $12.94 a bushel.

Hong Kong’s Hang Seng share index led equity market falls in Asia, dropping 3.9 per cent and closing at its lowest level since 2016. Tokyo’s Nikkei 225 declined 2.9 per cent.