The good oil is a predominantly Australian idiom meaning reliable and pertinent information. The good oil is what we deliver every day here at Proactive.
Lately, the ‘good oil’ has been dominated by actual oil and its rising price as markets grapple with the Russia/Ukraine war.
Today is no different.
Australians woke to the news that they could soon be paying an average of around $2.15 per litre for the pleasure of driving their car.
This could be one reason that only 20% of office workers have returned to the office post-COVID.
Of course, people have also become accustomed to the freedoms that working from home provide: more time with family, two hours extra in a day, no crowded commute on public transport that is either late or cancelled, fatter wallets and healthier eating habits.
That’s a story in itself.
Back to oil though and Brent crude topped $130 a barrel, the highest level since July 2008.
The US Nymex crude price was up 3.2% to $US119.42 a barrel. Europe gas prices also surged to record levels.
The price could surge higher if the US and European governments ban oil imports.
Russian deputy prime minister Alexander Novak warns a ban on Russian oil imports would have "catastrophic" consequences.
"The surge in prices will be unpredictable – more than $US300 per barrel, if not more," Novak said in remarks carried by Russian news agencies.
Novak said it would be impossible to quickly replace Russian oil in the European market.
"It will take more than one year and it will be much more expensive for European consumers.
"European politicians should then honestly warn their citizens, consumers what awaits them and that prices at gas stations, for electricity, for heating will skyrocket."
Meanwhile, Germany, Britain and the Netherlands have cautioned against an abrupt ban on Russian energy imports, citing no immediate alternative supplies.
“Europe has deliberately exempted energy supplies from Russia from sanctions,” German Chancellor Olaf Scholz says in a statement.
“Supplying Europe with energy for heat generation, mobility, electricity supply and industry cannot be secured in any other way at the moment.”
“It is therefore of essential importance for the provision of public services and the daily lives of our citizens.”
Germany is heavily dependent on Russian fossil fuels, importing approximately 55% of its gas and 40% of its oil and coal from Russia. While Germany has vowed to wean itself away from Russian supply, it says it will take time to do so.
UK Prime Minister Boris Johnson said it was a “step by step process”.
While rising prices may be good for investors of non-Russian oil suppliers and explorers, the rest of the world is waiting with bated breath to see what happens next at the petrol pump.
With that in mind, “global markets remain on edge and risk averse by the ongoing war in eastern Europe,” said a note from Charles Schwab (NYSE:SCHW).
“Skittishness continues to grow as an already sizzling inflation backdrop is being amplified by the continued spike in oil prices.”
Read: Inflation risks grow as oil, gas and coal prices rise to multi-year highs
Here’s what we saw overnight (source Commsec):
- The Euro fell from highs near US$1.0950 to lows near US$1.0805 and was at US$1.0865 in afternoon US trade.
- The Aussie dollar fell from highs near US74.40 cents to lows near US73.10 cents and was at US73.15 cents in US trade.
- Crude prices recorded their largest ever daily moves after the US said it was considering bans on Russian oil. There were also doubts about a lift in Iranian crude exports as talks to revive a 2015 nuclear deal were at a stalemate.
- The Brent crude price rose by US$5.10 a barrel or 4.3% to US$123.21 a barrel after briefly hitting a 14-year high of US$139.13 a barrel.
- The US Nymex crude price rose by US$3.72 or 3.2% to US$119.40 a barrel after earlier hitting a 14-year high of US$130.50 an ounce.
- Base metal prices were mixed on Monday. Copper, aluminium, lead and tin fell by as much as 4.2%.
- Nickel soared 62.8% to record highs and zinc rose 1.5%.
- The gold futures price rose by US$29.30 or 1.5% to US$1,995.90 an ounce.
- Spot gold was trading near US$1,998 an ounce in US trade.
- Iron ore rose by US$10.35 or 6.8% to US$162.75 a tonne.
Australian market
Australia is now on Russian President Vladamir Putin’s ‘hit list’. Australia has been added to a list of states and territories committing "unfriendly actions" against the Russian Federation, Russian individuals and Russian legal entities.
Australia joins Britain, the European Union, Japan, New Zealand and others that have imposed sanctions.
From here on in, corporate deals done by a Russian company or person with any Australian company or individual need special approval by the Russian state commission.
Further to this, payment for any goods and services above 10 million rubles, the equivalent of $86,000, must now be paid out in rubles.
Meanwhile, Prime Minister Scott Morrison is trying to find a balance between economic and national security.
"We face these incredibly unique times, we have moved into a new era – the world has become a more uncertain, less stable and more dangerous place," Morrison said.
"The economic agendas are just not reheats from the 1990s. We need to address the challenge that exists in this day, in this age."
The PM said he wanted to unlock Australia's sovereign manufacturing capability, a move he said would create well-paid jobs for the next generation.
As for the Australian market, it is set for a flat morning.
ASX SPI 200 futures are up 1 point, or less than 0.1%, to 7,028 after earlier trading down 18 points.
US markets
Took a dive yesterday, as the US mulled a ban on Russian oil imports.
Technology, financials, communication services and consumer discretionary led the declines.
American Express lost 8.0% and McDonalds fell 4.9%.
Of course, energy rose 1.5% and defence stocks also led the gains.
Shares in Lockheed Martin (NYSE:LMT) rose by 1.8%.
At the close, the Dow Jones index was down by 797 points or 2.4%. The S&P 500 index fell by 3.0% and the Nasdaq was lower by 482 points or 3.6%.
A close below 33,119.685 was the level needed to mark a 10% decline from the Dow’s January 4 record high. This met the commonly used definition of a correction. The Dow finished Monday trade at 32,817.38.
This is the first time the Dow has been in correction territory since February 27, 2020. This extended into bear territory, defines as a drop of at least 20% from a recent peak.
European markets
Were also hit on Monday, but lifted from session lows as the energy sector rose in line with higher oil prices.
The energy sector rose by 4.3%.
Shares in Shell gained 8%, while banks were down 4.1% and the auto sector also led declines.
The European Central Bank meets later this week, but with possible stagflation - weak economic growth, high inflation – on the agenda, investors are uncertain over the future direction of interest rates.
The pan-European STOXX 600 index fell by 1.1%. The German Dax index lost 2.0% with the UK FTSE index down by 0.4%.
In London trade, shares in Rio Tinto fell by 0.1% while shares in BHP were up by 2.2%.