Suddenly there’s a reverse in the commodity price surge which were dragged lower by a double-digit slide in oil prices.
That’s despite the war in Ukraine continuing with the Russians bombing and destroying a maternity hospital in a besieged city.
And sharemarkets went the other way – with solid rises in Europe and the US on Wednesday and a rebound for Asia on Thursday, though the Australian market won’t see such a large gain given it has shown resilience in recent days in the face of the sell-off.
Futures trading saw the ASX Share price Index lose ground towards the end of the overnight session, despite the big gains on Wall Street but it finished with a little jump to be up 27 points for an expected positive start to the local session today.
Oil prices dropped in a sudden move on Wednesday, giving back some of the rally this month amid confusion over supply disruptions stemming from Russia’s invasion of Ukraine.
The US marker crude, West Texas Intermediate (WTI) tumbled more than 12% to trade at $US108.70 a barrel at one stage – remember WTI topped $US130 a barrel briefly — a 13-year high. WTI was trading up around $US110 in Asia on Thursday morning.
Brent crude the international benchmark, lost around 13% to $US111. Brent had hit $US139 on Monday, its highest since 2008 and was back above $US112 a barrel in Asia on Thursday.
The weakness in oil prices came amid indications of possible progress by the US in encouraging more oil production from other producers.
Reuters reported that Iraq said it could increase output if the OPEC+ groups asks. US Secretary of State Antony Blinken also signalled that UAE would support increased production by OPEC+.
Despite the falls, prices for both crudes though remain up more than 15% so far this month.
News of the slide in oil prices saw Wall Street enjoy a rare surge (these days) of its own with the Dow leaping 652.72 points, or 2%. The S&P 500 climbed 2.6%, for its best day since June, 2020 and the Nasdaq Composite jumped 3.6%, for its best day since November 2020.
As dramatic as the rises were, they had all the hallmarks of a relief rebound and analysts are not certain it will be followed by a similar rise tonight.
US bond yields rose back to around 1.94% as confidence returned. The US dollar rose, as did the Aussie which regained the 73 US cent level.
Comex gold slumped more than $US55 an ounce or 2.7%, to drop back under the $US2,000 an ounce level and settle around $US1,986 an ounce. Silver and copper also tumbled. Silver lost more than 4%, copper almost 3%.
It was gold’s first losing session in the last five.
April iron ore futures in Singapore ended at $US161 a tonne for 62% Fe fines delivered to northern China while March Australian hard coking coal closed at $US625 a tonne
European markets jumped on Wednesday as commodity prices took a breather amid Russia’s invasion of Ukraine with oil sliding sharply.
The pan-European Stoxx 600 index jumped 4.7%, its biggest one day gain its best since March 2020 when the post pandemic rebound was starting.
Auto stocks added 9.5% to lead markets higher as most sectors and major bourses ended the session in positive territory. Oil and gas shares fell nearly 2.5%.
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The slide in oil prices came a day after they surged on the news that from President Joe Biden that America will ban imports of Russian oil, marking a major escalation in the international response to Moscow’s invasion of Ukraine.
The impact from that news was softened by suggestions from OPEC members of higher production.
News of the changing attitude in OPEC came in a story in the Financial Times which reported comments by the UAE ambassador to the US as saying
“The United Arab Emirates will encourage fellow Opec members to increase oil production as Russia’s invasion of Ukraine has driven crude prices to their highest levels in more than a decade.
“The UAE is the first Opec member to call on the alliance to boost its production since Vladimir Putin, president of Russia, triggered a global crisis by ordering his troops into Ukraine two weeks ago.
“Yousef al-Otaiba, the UAE’s ambassador to Washington, said in a statement to the Financial Times: “We favour production increases and will be encouraging Opec to consider higher production levels.”
“The UAE has been a reliable and responsible supplier of energy to global markets for more than 50 years and believes that stability in energy markets is critical to the global economy,” he added.
The comments are important because up till now the UAE had been a defacto supporter of Russia – abstaining in a key UN vote, ending visa free travel for Ukranian residents and not pressuring other members of the OPEC+group last week to make a bigger cut in the size of their oil production cap.
Now there seems to have been a change of heart and we can assume that US pressure had a lot to do with that seeing US troops and other military assets are based in the UAE to support the country in case the war in Yemen worsens.
The UAE is also close to Iran and there’s a growing belief it and the US led group will announce a deal that will see more Iranian crude on the market. Russia though is trying to hold up that agreement.
The UAE is also a close ally of Saudi Arabia, the OPEC leader which has been resisting US calls to raise production. However, last year Abu Dhabi became embroiled in a dispute with the Saudis over output quotas.
The FT report said it was clear if the UAE had co-ordinated with Saudi Arabia on its plans to encourage Opec to increase production.
