Oil rallied again today with U.S. benchmark West Texas Intermediate up 4.79% on the day to $114.79 a barrel and international benchmark Brent up 5.12% to $121.39 a barrel. So, natural, oil and gas equities stocks are up today. And the broader market is down. What else isn’t new?
Oil prices collapsed. And airlines reported better than expected pick up in traffic. So airline stocks soared with the most stressed operators showing the biggest gains in their shares. Delta Air Lines (DAL) closed up 8.70% on the day. United Airlines (ULA) picked up 9.19%. And American Airlines (AAL) gained 9.26%.
The United States will ban imports of oil and natural gas from Russia, President Biden announced Tuesday. U.S. allies in Europe also announced action on the energy front with a plan to cut natural gas imports from Russia by two-thirds in 2022. Even though the White House has said that the long-lead time on the ban would give importers and consumers time to find other sources by the end of 2022, oil futures soared today with the price of West Texas Intermediate, the U.S. crude benchmark, climbing to $126.98 a barrel, up 6.35%, for April delivery as of 12:30 p.m. in New York. International benchmark Brent creek rose 6.52%to $131.24 a barrel for April delivery.
I suppose there is something else that could add to the supply of bad news today on oil supply, but we’ve already got a full dance card At 2 P.m. in New York U.S. crude benchmark West Texas Intermediate traded up 5.07% to $121.55 a barrel; international benchmark Brent crude was up 6.24% to $125.48 a barrel. Where to start?
As far as I’ve been able to discover, it was a research note from Wolfe Research that began the negative “rethink.” Wolfe forecast that the airlines including United Airlines (UAL) and American Airlines (AAL) were burning cash so fast because of the jump in the cost of jet fuel that they might need to sell stock to secure more liquidity.. The worry isn’t outlandish. Oil broke above $115 a barrel (for U.S. West Texas Intermediate) today and JPMorgan Chase and Goldman Sachs have both recently projected that crude could rise to $185 a barrel by the end of 2022. Today shares of American Airlines (AA) were off 7.13%. United Airlines (UAL) dropped 9.07%. And Delta Air Lines (DAL) was down 5.63%.
On Saturday the European Union nations that control SWIFT, the dominant global network connecting banks, announced that they would expel some specific Russian banks from the network. The U.S., Canada, and the United Kingdom agreed with the move. The U.S. and its European allies left open the question of sanctions directly on Russia’s central bank.
The move to deny access to SWIFT means that the named Russian banks, and I’m not naming them because I haven’t been able to find a list, won’t be able to pay other banks or receive funds from other banks. They will not be able to transact business with international banks over the SWIFT network for their client businesses. I’d expect that out of an abundance of understandable caution, many Western banks will refuse to do business with Russian banks at all.
I expect extreme volatility in oil prices this week. A Friday deadline looms for an agreement on the Iran nuclear program that would remove U.S. sanctions on Iranian oil. Every rumor of yes a deal, no deal will send oil prices tumbling or soaring. And a Sunday meeting of European foreign ministers on whether or not to shut Russia out of the SWIFT payments system would also likely sink of spike oil prices since this is the since this is the system European countries use to pay for Russian oil and natural gas.
The Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, rose at a year over year 6.1% rate in January. That tops the 5.8% annual rate in December. Economists had been projecting a 6% increase for January.
Oil and other fossil fuels aren’t going to go quietly. And it’s extremely unlikely that the countries whose global power is predicated on oil are going to give up that power easily. From this viewpoint, the Russian invasion of Ukraine is the first in the next generation of energy wars, as fossil-fuel powers fight to extend their power into a new global energy age.
Yes, interest rates and the Federal Reserve and the Ukraine/Russia conflict are likely to dominate stock market direction this week, but don’t forget the power of the Iran/United States nuclear talks to move oil prices or the power of moves by Chinese regulators to wipe billions off the value of the country’s Internet stocks
Today what counts in the market is Vladimir Putin’s intentions. Jerome Powell? Maybe tomorrow. And that’s in spite of a jump in producer prices, which usually translates not consumer inflation.
Brent crude, the international oil benchmark, broke above $95 a barrel on Friday to an intraday high of $95.66 before closing at $94.44, up 3.31%. U.S. benchmark West Texas Intermediate closed ahead 3.58% to $93.1 after trading as high as $94.66. The short-term reason was increased fear of a wider shooting conflict between Russia and Ukraine. Long-term term, reason higher projections of global oil demand in 2022 from the International Energy Agency. The IEA raised its 2022 demand forecast and said it now expects global demand to expand by 3.2 million barrels per day this year. That would take demand to an all-time record.
