Sanctions on Russia’s oil will keep crude prices elevated, predicts Pratibha Thaker, editorial and regional director for Middle East and Africa at the Economist Intelligence Unit:
“Driven by headlines, the international oil market continues to create havoc with oil prices. Russian imports make up a tiny amount of US’s energy needs, but Joe Biden’s bold unilateral ban on imports of Russian oil, LNG, and coal as part of the latest round of sanctions pushed oil prices to pass U$120/barrel.
Europe’s move in the same direction is likely to be slower, but the ripple effects from the invasion, oil sanctions against an extremely tight energy market points to elevated triple digit prices remaining for the moment.”
According to the US Energy Information Administration, Russia provided just 7% of total US petroleum imports (including crude oil) in 2020.
Brent crude has now jumped to $131 per barrel, a 6.5% gain today – up from $80 per barrel at the start of this year.
US crude is now up around $127/barrel, up over $7 today.
The UK’s Society of Motor Manufacturers and Traders has expressed some concern about the sharp rises in metal prices and the impact on carmakers.
Mike Hawes, SMMT chief executive, said:
“Russia and Ukraine produce some key raw materials for the European automotive supply chain, including aluminium, palladium and nickel, which is used in battery manufacturing. Rising metal costs add further risk into global supply chains already impacted by inflationary pressures, component shortages and energy price rises.
“UK vehicle makers are highly adaptable, but commodity prices are often set on international markets and volatility is expected for some time. The immediate future is unclear and we are working with government and our members to help understand what the long-term impacts of this situation may be and how to address them.”
Meanwhile, a spokesperson for the German car manufacturer Volkswagen said the company had hedging contracts in place on particular materials, which should give some protection against short-term surges in raw material prices.
“Clearly it is too early to say what the mid to long-term picture looks like. Having said that, as a global business, with around 10m car sales in a normal year, we clearly have significant buying clout and are an attractive partner for commodity companies.
“Volkswagen continues to hope for a cessation of hostilities and a return to diplomacy. It is our conviction that a lasting solution to the conflict is possible only on the basis of international law.”
Gold is rallying today too, with investors seeking out safe-haven assets as the Russia-Ukraine war continues to shake markets.
Spot gold is up almost 3% today at $2,054 per ounce, approaching the record high in August 2020.
Craig Erlam of brokerage OANDA says:
Record highs are not that far away and it’s hard to imagine a scenario in which demand doesn’t remain strong. We’re seeing such significant amounts of volatility and uncertainty at the moment that there’s rarely been a stronger bull case for a traditional safe haven like gold.
Politico: UK ‘set to announce ban on Russian oil imports over coming months’
Politico are reporting that the UK is planning to announce a ban on the import of Russian oil over the coming months.
The move, expected to be announced this afternoon, will be gradually phased in over months, they say, rather than an overnight sharp shock, to avoid drivers panic-buying fuel.
There will be a months-long lead-in time on the ban to allow the global market to adjust and to stop people panic-buying petrol, the British officials said.
There will not be a ban on Russian gas at the same time, but this is still under discussion within the government, Politico adds.
Britain is less dependent on Russian imports of fossil fuels compared to much of mainland Europe and Germany remains resistant to a full ban by Western allies.
However, Russian supplies are not insignificant in the British market. They make up 8% of overall oil imports into the UK and account for 18% of diesel.
Here’s Sky’s Sam Coates:
Here’s the full story so far:
US crude has risen on expectations that the White House will announce a ban on Russian oil imports today.
WTI crude is currently up $7.50 per barrel, or 6%, to above $126 per barrel — towards Sunday night’s 14-year high around $130/barrel.
Higher crude prices have already lifted gasoline prices at the pumps in recent months, helping to push US inflation to the highest since 1982.
But a Quinnipiac University poll found that despite having to pay on average more than $4 a gallon at the pump – more than $5 a gallon in California – 71% of Americans support a ban on Russian oil, our US Politics Liveblog reports.
The White House says president Joe Biden will make a statement at 10.45am in Washington (3.45pm UK time) on “actions to continue to hold Russia accountable for its unprovoked and unjustified war on Ukraine”.
AP Source: Biden to ban Russian oil imports over Ukraine war
Associated Press says President Joe Biden has decided to ban Russian oil imports, toughening the toll on Russia’s economy in retaliation for its invasion of Ukraine, according to a person familiar with the matter.
Biden was set to announce the move as soon as Tuesday, the person said, speaking on the condition of anonymity to discuss the matter before an announcement.
The White House said Biden would speak Tuesday morning to announce “actions to continue to hold Russia accountable for its unprovoked and unjustified war on Ukraine.”
The U.S. will be acting alone, but in close consultation with European allies, who are more dependent on Russian energy supplies. Natural gas from Russia accounts for one-third of Europe’s consumption of the fossil fuel. The U.S. does not import Russian natural gas.
Ukrainian president Volodymyr Zelenskiy had called on US and Western officials to cut off Russian energy imports. They were not covered by the massive sanctions put in place on Russia over the invasion, meaning cash waas still flowing into Russia despite otherwise severe restrictions on its financial sector.
Oil jumps on report US to ban Russian oil imports
Just in – Bloomberg are reporting that the US is to ban imports of Russian oil, and that an announcement could come as soon as today.
The news has driven the oil price higher, with Brent crude now up $5 or 4.5% today at $128.70 per barrel.
On Sunday, Secretary of State Antony Blinken says the US was in “very active discussions” with its European allies about banning Russian oil imports.
That drove Brent crude oil to 14-year high of $139 per barrel late on Sunday night, before dropping back after Germany pushed back against the idea yesterday.
LME cancels nickel trades after ‘unprecented’ events
Wow. The London Metal Exchange (LME) has now cancelled all nickel trades that took place today, as the price doubled to a record $100,000 per tonne.
It has acted after prices doubled in a matter of hours in a remarkable short squeeze which reportedly leaves a Chinese nickel tycoon facing heavy losses potentially running into billions of dollars.
Having already suspended nickel trading this morning (see here), the LME has now decided to cancel today’s trades executed since 00:00 UK time before trading was suspended, and defer delivery of all physically settled Nickel Contracts due for delivery tomorrow.
In a notice to members, the LME says “The current events are unprecedented”, and that it is tracking the impact of the Russia-Ukraine situation on the metals market.
The exchange says:
The LME is committed to working with market participants to ensure the continued orderly functioning of the market. The suspension of the Nickel market has created a number of issues for market participants which need to be addressed.
This Notice is intended to address the most pressing of those issues. Further communications will be issued during the course of today, including regarding the process for reopening the market.
As flagged earlier, a major short squeeze has helped to drive nickel prices to unprecented levels, alongside concerns about supply disruption from Russia.
Bloomberg has been reporting in recent weeks that Chinese entrepreneur Xiang Guangda had amassed short positions in nickel derivatives to hedge against the risk of falling prices.
Guangda controls the world’s largest nickel producer, Tsingshan Holding, which has been ramping up a wave of new battery-grade nickel capacity in Indonesia.
Those short positions would have become increasingly costly, though, for Guangda, as the nickel price has risen sharply higher due to increased demand and supply worries.
Today, Bloomberg says Guangda, known as “Big Shot”, facing ‘billions of dollars’ in losses:
A Chinese tycoon who built a massive short position in nickel futures is facing billions of dollars in mark-to-market losses after the metal surged more than 170% in two days, according to people familiar with the matter.
Xiang Guangda — who controls the world’s largest nickel producer, Tsingshan Holding Group Co., and is known as “Big Shot” in Chinese commodity circles — has closed out part of his company’s short position and is considering whether to exit the wager altogether, the people said. Nickel rocketed to a record high above $100,000 a ton on Tuesday, driven in part by Tsingshan and its brokers’ activity, before trading was suspended.
While the exact scale of Xiang’s losses is unclear, Tsingshan’s short position on the LME is in the region of 100,000 tons of nickel, people familiar with the matter said. It could be even larger than that when positions taken through intermediaries are taken into account, people separately said. That means it would have suffered well over $2 billion of daily losses at the most extreme point of nickel’s surge on Monday.
The LME’s contracts can be settled physically from metal that sits in its network of approved warehouses across the world, meaning it is the leading price setter for industrial metals and also the market of last resort for consumers who need raw materials.
Its customers include physical producers and big industrial consumers of metal seeking to hedge their exposure to prices (the FT has more details here).
ING cuts UK growth forecasts
Dutch investment bank ING has cut its UK growth forecasts too, warning there is a growing risk of a consumer spending downturn due to war in Ukraine and spiking energy costs.
ING now expects quarterly growth rates to fall to zero late this year, as the economy recovery peters out.
Inflation is expected to peak near 8% in April when the energy price cap lifts (up from 5.5% CPI in January), and still be near 6% at the end of the year.
ING’s developed markets economist James Smith explains:
“Like the eurozone, it’s perhaps too early to say that all of this will trigger an outright recession in the UK economy. Omicron appears to have done little, if any, lasting damage to the recovery, while investment looks set for a strong year. Wage growth is rising quickly by historical standards, while the stock of ‘excess’ savings built through the pandemic sits at 8% of GDP.
“However these are more heavily concentrated in higher-income groups that are less likely to cut back spending dramatically in the face of higher inflation, and the government will be under increasing pressure to add further support for those on lower incomes. Consumer confidence is sliding, and our best guess is that household spending falls later this year.
CEBR: UK economy to flatline in 2023 as inflation surges
The UK economic recovery will grind to a halt next year, as sanctions imposed on Russia lift commodity prices and push up inflation, the CEBR economics consultancy has warned.
CEBR has more than halved its forecast for UK growth this year, from 4.2% to 1.9%, and cut its 2023 forecast from 2.0% to 0%.
Over the course of both years this is a reduction in GDP of more than £90bn, CEBR says, as the cost of living rises, consumer consuption falls, and exports are hit by sanctions on Russia.
CEBR also warns that inflation will rise even higher this year, and not fall back as fast as hoped.
It now expects inflation to hit 8.7% in the second quarter of 2022 (up from 7.3% forecast before), and remain above 7% until Q1 2023 rather than falling back quite sharply.
That would sharply intensify the cost of living squeeze facing households, and mean heavy falls in disposable incomes this year and next.
The analysis is based on the oil price averaging $105 through the rest of 2022 and 2023, gas averaging 400p a therm, metal prices rising 30% for the rest of this year but falling back during 2023 to their pre-invasion levels, wheat 50% higher for the rest of this year and 25% higher next year, and some sympathetic price rises for other products.
Worryingly, this is not a ‘worst case’ scenario – spot prices are now higher than we assumed and Russia’s threat to stop supplying oil could well push the price of oil well above the level assumed.
CEBR also warns that:
- As a result of higher commodity prices, we estimate that disposable incomes will fall in 2022 by 4.8% with a further fall of 1.4% in 2023. The forecast fall in living standards this year is an estimated £71 billion – which amounts to £2,553 per household.
- The combined effects of sanctions and slower world trade growth reduce export growth in 2022 by 2.1 percentage points and by 0.5 percentage points in 2023.
This will put Chancellor Rishi Sunak under further pressure to put the economy on a “semi-wartime setting” on 23 March, when he presents the Spring Forecast Statement, CEBR adds.
Last month, Sunak announced a one-off repayable £200 discount and a £150 rebate on some council tax bills, to address the jump in gas bills due in April.
Here’s our new story on Shell’s decision to stop buying Russian oil and natural gas and shut down its service stations, aviation fuels and other operations in the country:
Pressure grows on McDonald’s and Coca-Cola to suspend Russia operations
McDonald’s, Coca-Cola, PepsiCo and other major western food and drink companies are under mounting pressure to pull out of Russia after its invasion of Ukraine, amid calls for consumer boycotts of the brands.
The companies have been criticised for their failure to speak out about the invasion, and for continuing to operate in Russia, while a host of other firms such as Netflix, Levi’s, Burberry and Ikea have halted business in the country.
#BoycottMcDonalds and #BoycottCocaCola have been trending on Twitter since the weekend. Other western food and drink chains including Starbucks, KFC and Burger King are also still operating in Russia.
Sean Penn, the American actor and film-maker, urged Americans on Twitter to boycott Coca-Cola, PepsiCo and McDonald’s until the companies suspend their operations in Russia. Core Response, the non-profit group he founded in 2010 in response to the Haiti earthquake, is on the ground in Poland helping Ukrainian refugees.
In the UK, Dragon’s Den investor Deborah Meaden has also urged consumers to boycott the fizzy drinks giant Coca-Cola.
Here’s the full story:
Shell to withdraw from Russian oil and gas
Oil giant Shell has announced it plans to withdraw from the Russian oil and gas market, following the Ukraine invasion.
As an immediate first step, Shell says it will stop all spot purchases of Russian crude oil, after being heavily criticised for buying an oil shipment from Russia last Friday.
Shell will shut its service stations, aviation fuels and lubricants operations in Russia. It will also begin “a phased withdrawal” from Russian petroleum products, pipeline gas and LNG (liquified natural gas).
The company said the change could take weeks to complete and will lead to reduced throughput at some of its refineries.
Shell chief executive officer, Ben van Beurden, says the company is “sorry” for buying the oil shipment from Russia last Friday. Ukraine’s foreign minister, Dmytro Kuleba, publicly criticised Shell, tweeting on Saturday “Doesn’t Russian oil smell [like] Ukrainian blood for you?”, and urging the public to press multinational companies to cut all business ties with Russia.
Ben van Beurden says today:
“We are acutely aware that our decision last week to purchase a cargo of Russian crude oil to be refined into products like petrol and diesel – despite being made with security of supplies at the forefront of our thinking – was not the right one and we are sorry. As we have already said, we will commit profits from the limited, remaining amounts of Russian oil we will process to a dedicated fund. We will work with aid partners and humanitarian agencies over the coming days and weeks to determine where the monies from this fund are best placed to alleviate the terrible consequences that this war is having on the people of Ukraine,”
“Our actions to date have been guided by continuous discussions with governments about the need to disentangle society from Russian energy flows, while maintaining energy supplies. Threats today to stop pipeline flows to Europe further illustrate the difficult choices and potential consequences we face as we try to do this.
Van Beurden explains that “Unless directed by governments”, Shell will:
- Immediately stop buying Russian crude oil on the spot market and we will not renew term contracts.
- At the same time, in close consultation with governments, we are changing our crude oil supply chain to remove Russian volumes. We will do this as fast as possible, but the physical location and availability of alternatives mean this could take weeks to complete and will lead to reduced throughput at some of our refineries.
- We will shut our service stations, aviation fuels and lubricants operations in Russia. We will consider very carefully the safest way to do this, but the process will start immediately.
- We will start our phased withdrawal from Russian petroleum products, pipeline gas and LNG. This is a complex challenge. Changing this part of the energy system will require concerted action by governments, energy suppliers and customers, and a transition to other energy supplies will take much longer.
A ban on Russian vessels introduced last week by the transport secretary, Grant Shapps, does not cover cargo, allowing several ships to dock since then despite carrying gas or oil that was ultimately purchased from Kremlin-controlled entities.
But a ship carrying Russian oil that was moored at Stanlow Oil Refinery in north-west England had to move on after workers made it clear they would not unload the cargo.
LME suspends nickel trading after prices soar past $100,000
The London Metal Exchange (LME) has halted nickel trading for the day after prices doubled to a record $100,000 per tonne, fuelled by a race to cover short positions after Western sanctions threatened supply from major producer Russia, Reuters reports.
The rare move underscores the market panic created by Russia’s invasion of Ukraine with buyers scrambling for the metal crucial for making stainless steel and electric vehicle batteries.
“The LME has taken this decision on orderly market grounds,” said the LME, one of the world’s top commodity exchanges, adding it was considering a closure of several days.
“The LME will actively plan for the reopening of the nickel market, and will announce the mechanics of this to the market as soon as possible.”
The move came after three-month nickel on the LME more than doubled on Tuesday to $101,365 a tonne this morning (see opening post) before the LME halted trade on its electronic systems and in the open outcry ring.
The uncertainty caused by Russia’s invasion and resulting sanctions has added to an already bullish nickel market due to low inventories.
Nickel prices have quadrupled over the past week on fears of further curbs on supply.
Russia not only supplies about 10% of the world’s nickel but Russia’s Nornickel is the world’s biggest supplier of battery- grade nickel at 15%-20% of global supply, said JPMorgan analyst Dominic O’Kane.