Oil prices rose on Thursday as investors worried about new Russian penalties that might slash already-dwindling supplies, while major equities markets fell due to rising inflation and central bank intentions to raise interest rates dramatically.
The recent equities rise appears to have run its course for now, as investors keep a wary eye on developments in Ukraine, where efforts to seek a diplomatic solution are stumbling.
All eyes are on NATO meetings this week, where Joe Biden and other leaders are likely to consider additional sanctions against Moscow for the month-long invasion, while the European Union continues to debate a possible oil embargo against Russia.
Russia’s warning that repairs at a terminal near a Black Sea port might take up to two months, resulting in a one-million-barrel-per-day decrease in shipments, heightened supply concerns.
Both main contracts rose more than 5% on Wednesday, with Brent returning to $120, and they continued to rise in early Asian trading.
Speculation over progress in the Iran nuclear deal, which could lead to the return of Tehran’s crude to world markets, provided little assistance.
The rise in oil prices will exacerbate already high inflation, which is at a 40-year high in the US and a 30-year high in the UK, putting pressure on central banks to tighten monetary policy before prices spiral out of control.
The Federal Reserve has become more hawkish as a result of this.
Following last week’s announcement of a quarter-point hike, Federal Reserve Chairman Jerome Powell suggested on Monday that authorities could raise interest rates by as much as half a point on multiple occasions if price increases do not decrease, even if it means jeopardising the economy’s recovery.