Premarket shares: Oil prices fell 30% in a week. What gives?

Shares also rose on the news. That Doe added about 600 points, or 1.8%, on Tuesday. That S&P 500 as well as Nasdaq increased by 2.1% and 2.9% respectively.

What’s happening: The unusually sharp pullback was fueled by hopes that Saudi Arabia and the United Arab Emirates could increase oil production, and demand from China could fall due to new coronavirus restrictions in major cities. This would ease the pressure on the market.

However, analysts warn that we are not yet out of the woods. Oil is still trading well above its cost of production, and wild swings are likely to continue in a moment of great uncertainty.

“I wouldn’t rule out $200 a barrel just yet,” Bjornar Tonhaugen, head of oil markets at Rystad Energy, told me. “Too early”.

After the invasion, oil prices skyrocketed as traders began to regard Russian crude oil exports as untouchable. This raised concerns about how that 4 to 5 million barrels per day supply could be replenished, especially given the surge in fuel demand in the summer.

However, last week investors seemed to be wondering if they had gone too far, too fast. United Arab Emirates said the ambassador to Washington that the country wants to increase oil production, which raises hope that the Organization of the Petroleum Exporting Countries, or OPEC, can intervene after all. Meanwhile, Russia and Ukraine are still talking, even as the war rages on.

In addition, China’s drive to stop the spread of Covid-19, which has led to the closure of the Shenzhen technology center and new regulations in Shanghai, could mean the country will need less energy in the short term. China imports about 11 million barrels of oil per day.

“People remembered that we are still in a pandemic,” Tonhaugen said.

Why it matters: Falling oil prices have helped prevent US gas prices from rising. For now, they have stopped climbing, although a gallon of gasoline still costs almost $4.32 on average.

While $100 a barrel of oil is still very expensive, if prices stay in that range, it could ease some concerns about accelerating inflation. Politicians would probably breathe a sigh of relief.

But it is clear that investors remain concerned about the consequences of the Russian invasion. Russian oil is still selling at a huge $26 discount to Brent.

And analysts believe that the direction of movement is determined. Giovanni Staunovo, an analyst at UBS, expects oil to hit $125 a barrel by the end of June. For his part, Rystad Energy’s Tonhaugen believes prices can still break records as the conflict ends.

“This is the calm before the storm,” he said.

Sell-off in Chinese stocks deepens

Investors are rushing to dump Chinese stocks as concerns grow over the fallout from regulatory crackdowns and a surge in Omicron cases. Fears are heightened by whether Beijing will be able to support Russia and be punished for this by the West.

“There may be growing caution about potential secondary sanctions against China,” TD Securities strategist Mitul Kotecha told clients.

The Shanghai Composite fell nearly 5% on Tuesday. The Hong Kong Hang Seng fell by almost 6%. The index has fallen over 10% in the last two trading sessions.

The decline occurred despite unexpectedly positive economic data from China on Tuesday. Retail sales are up 6.7% in the first two months of this year compared to the same period in 2021. Industrial production jumped 7.5%, beating economists’ forecasts.

“The momentum of China’s economic recovery improved in January and February, laying a solid foundation for a good start in the first quarter of this year,” a spokesman for the National Bureau of Statistics said.

But as China grapples with its worst Covid-19 outbreak in two years, investors see little cause for optimism.

“As officials abandon targeted containment measures in favor of wholesale restrictions, this could be even more devastating than last summer’s Delta wave, which led to a sharp decline in production,” Capital Economics’ Julian Evans-Pritchard wrote on Tuesday.

This is not the only reason investors are nervous. Tech giant Tencent could reportedly be fined for violating China’s anti-launch money rules, causing its stock to float freely. Other big tech companies like Alibaba have been hit after the Securities and Exchange Commission cracked down on foreign companies that don’t meet US disclosure requirements.

Can a Russian default come tomorrow?

Russia may be on the brink of default on external debt for the first time since 1918 after the Bolshevik revolution.

Lastly, half of the country’s foreign exchange reserves – an estimated $315 billion – were frozen due to Western sanctions imposed after the invasion of Ukraine. As a result, according to the Russian finance minister, Moscow will pay creditors from “unfriendly countries” in rubles until the sanctions are lifted.

Rating agencies will likely consider Russia to be in default if Moscow misses payments or repays debt issued in dollars or euros in other currencies, such as the ruble or the Chinese yuan, my CNN Business colleague Charles Riley tells CNN Business.

According to JPMorgan Chase, that moment could come as early as Wednesday, when Moscow needs to hand over $117 million in interest payments on dollar-denominated government bonds. While Russia has issued bonds since 2018 that can be redeemed in multiple currencies, these payments must be made in US dollars.

Why it matters: A default could force the few remaining foreign investors out of Russia and further isolate the country’s collapsing economy.

Other possible consequences are difficult to assess. The global financial crisis of 2008, triggered by the collapse of Lehman Brothers, showed how negative shocks can quickly spread through the financial system and the global economy.

“It’s not just Russians who will suffer from Russian sanctions,” Patrick Jenkins of the Financial Times. wrote this week. “The world must remember Lehman”.

Next

The US Producer Price Index, a key indicator of inflation, is released at 8:30 am ET.

Tomorrow: The Federal Reserve is expected to start raising interest rates for the first time since the pandemic began in 2020.

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