Oil Tumbles Below $100 On Ukraine Talks, China Covid Worries, And Iran Nuclear Deal Hopes – Business Live

Steel workers from across the country staged a protest outside Parliament today, calling for urgent support for their industry in next week’s Spring Statement.

Workers from steel areas including Rotherham, South Yorkshire, Scunthorpe, Lincolnshire, and Port Talbot in South Wales were joined by MPs and trade union officials to demand urgent action from the Government.

They warned that spiralling energy costs have led to production pauses, threatening job losses and the future of British steelmaking.

Roy Rickhuss, general secretary of the Community union, said:

“Steelworkers call on the Chancellor to act now to get us through this energy crisis and give us a level playing field to compete with EU producers.

“Our steel industry is as important now as it’s ever been, and the pandemic highlighted the dangers of relying on fragile international trading arrangements for essential goods.

“Russia’s invasion of Ukraine brings new uncertainties to the world, and reinforces the need for a strong domestic steel industry at the base of strategic supply chains vital to our national security.

Trade body UK Steel warned last autumn that energy costs in Britain were much higher than in rivals in Germany, and that overseas steelmakers were laughing at UK rivals:

The slump in the oil price, down over 20% in the last week, is ‘spectacular’, writes Fawad Razaqzada, market analyst with ThinkMarkets:

I think the biggest driver behind the sell-off in oil has been this: investor realisation that Europe is not going to wean off Russian oil supply immediately. Everything else is secondary, including the potential return of Iranian oil supply. Meanwhile, OPEC has highlighted the risk to the oil demand outlook arising from the Ukraine war and surging inflation.

Also weighing on oil prices is something that had sent prices into the negative last year: surging covid cases and lockdowns. This time, in China, the biggest oil importer in the world. Here, Covid cases have spiked sharply, and very sharply in certain regions. Consequently, the government has put tens of millions of people in lockdown. The most important regions are the entire Jilin province and technology hub Shenzhen.

The lockdowns have also weighed heavily on the Chinese yuan. Speaking of which, a report from WSJ says talks over pricing oil in yuan have accelerated as Saudis “have grown increasingly unhappy with decades-old U.S. security commitments to defend the kingdom.”

The US stock market has risen in morning trading, as falling oil prices help to lift the mood on Wall Street.

Nearly every sector is up, with travel stocks, banks and financial services companies, consumer goods and services firms and tech firms rallying.

Airline shares are leading the way, after US carriers raised their sales forecasts despite the recent surge in oil, and the Ukraine war.

AFP explains:

Major US carriers lifted their revenue forecasts Tuesday as a faster-than-expected travel recovery from the latest Covid-19 wave mitigates the drag from higher jet fuel costs.

American Airlines, Delta Air Lines, United Airlines and Southwest Airlines all offered similar appraisals of market conditions in presentations at an investment conference Tuesday.

American now expects first-quarter revenues to be down 17 percent compared with the 2019 period, after previously projecting a drop of as much as 22 percent.

“The improvement in revenue is expected to more than offset the increases in fuel and other expenses in the quarter,” American said in a securities filing.

Delta Air Lines reported “strong spring and summer travel demand” as it lifted its revenue forecast for the first quarter of 2022.

American, United and Delta are all up around 10%, leading the S&P 500 risers.

The Dow Jones industrial average is up 292 points, or 0.9%, at 33,237 points, led by Walt Disney (+3.1%), McDonalds (+2.9%) and American Express (+2.7%).

Oil cartel Opec has said the Ukraine war has driven up economic uncertainty, and could hit demand for oil.

In its latest monthly report, the Organization of the Petroleum Exporting Countries says the conflict is adding to the downside risks facing the world economy this year.

It warns that “the latest events in Eastern Europe may derail the recovery”, and could hit oil consumption and investment.

Given the uncertainty, Opec hasn’t yet changed its prediction for robust demand growth this year, but is keeping economic forecasts under review.

While the drag of the pandemic was still being felt in major economies in 1Q22, the war in Eastern Europe has led to a level shift in global economic uncertainty.

Opec flags that the conflict has driven up commodity prices, escalating global inflation, and heavily hit trade flows and transportation logistics.

The report also points out that financial conditions have tightened, due to currency moves, falling share prices and an ongoing repricing of debt.

Opec says that “clearly, this will impact economic activities in 2022”, although it’s not clear at this stage what the full consequences of the invasion will be.

Looking ahead, and given the latest developments, which are still only beginning to unfold, it is clear that uncertainty will dominate in the remaining months of 2022: i.e.: uncertainty with regard to the scope and impact of the current geopolitical turmoil, restrictions and restructuring of production and trade flows, uncertainty on to what degree this will impact inflation and oil demand, and how this will serve to accelerate the drive towards energy transition, particularly in Europe.

Given this unprecedented level of uncertainty, Opec is keeping its forecast that global demand will rise by 4.2m barrels per day in 2022 “under assessment” until there is more clarity.

In light of these highly volatile times, the safeguarding of market stability will remain paramount to both oil producing and consuming countries.

Surging energy prices have meant American producers kept hiking prices at a record annual pace in February.

US producer prices (which measures what firms receive for their goods and services) rose 10.0% last month, matching January’s record reading.

That shows that inflationary pressures are still strong, meaning consumers will continue to face higher prices in coming months.

Producer prices rose 0.8% in February alone, slower than January’s 1.2% jump, with goods price up by a record 2.4% in the month.

This was driven by a 14.8% surge in gasoline, as motorists in the US (as in the UK, Europe and elsewhere) were hit by price rises at the pumps.

Core producer price inflation did ease a little — PPI excluding foods, energy, and trade services rose 6.6% over the last year, and by 0.2% in the month alone.

Inflationary concerns mean the US Federal Reserve is all-but-certain to raise interest rates on Wednesday, for the first time since the pandemic began.

The UK government has hit hundreds of Russian individuals and entities with new sanctions.

The list includes super-wealthy individuals and their families with a combined net worth of £100bn.

The move comes as Britain catches up with the EU and US in the race to target allies of Russian President Vladimir Putin, after fast-tracking the Economic Crime Bill into law overnight.

Those on the list include former president Dmitry Medvedev, defence minister Sergei Shoigu and Russian television executive Konstantin Ernst (also sanctioned by the EU today).

Oligarchs Mikhail Fridman, who co-founded Russian conglomerate Alfa-Group, and close Putin ally Petr Aven are also being sanctioned. They were both sanctioned by the EU earlier this month, leading to their shares in the $22bn (£17bn) conglomerate LetterOne being suspended.

Foreign minister Liz Truss said.

“We are going further and faster than ever in hitting those closest to Putin – from major oligarchs, to his prime minister, and the propagandists who peddle his lies and disinformation. We are holding them to account for their complicity in Russia’s crimes in Ukraine,”

More here:

Back on sanctions…

The EU has imposed sanctions on the boss of anti-war protester Marina Ovsyannikova at Russia’s Channel One, along with Chelsea owner Roman Abramovich for his “very good relations with Vladimir Putin”.

Konstantin Ernst, the chief executive of the state-controlled TV channel, and Chelsea football club’s owner are among 15 individuals newly targeted by the EU.

The EU is also banning investments in Russia’s energy sector, as well as exports of finished steel products and most luxury goods, such as precious stones, clothes and carpets, over the value of €300 (£252) and cars worth more than €50,000.

There is also a complete transaction ban with nine Russian state-owned enterprises and the EU has prohibited the rating of the country and its companies by credit rating agencies.

Here’s the full story, by Daniel Boffey and Jennifer Rankin:

US crude oil has also dropped, with a barrel of West Texas Intermediate falling as low as $93.54, before a small rebound.

That’s the lowest since late February, down from $103 a barrel last night – and as high as $130/barrel a week ago.

Hopes of a breakthrough in the Iran nuclear talks are also pushing oil down.

Russia, which has been meeting with Iran today, has indicated it is in favour of the nuclear deal resuming as soon as possible, according to Reuters.

Russian foreign minister Sergei Lavrov has told a news conference that Moscow has received written guarantees that its cooperation with Iran will not be impacted by Westen sanctions over the Ukraine war.

This has lifted optimism that the 2015 nuclear deal could be revived, meaning sanctions on Iranian oil would be lifted, boosting supplies.

Talks were put on hold last week, after Moscow demanded that Western sanctions over Ukraine will “not in any way damage our right to free and full trade, economic and investment cooperation and military-technical cooperation” with Iran, if the deal was agreed.

Reuters says:

Russian Foreign Minister Sergei Lavrov on Tuesday said US suggestions that Moscow was blocking efforts to revive the Iran nuclear deal were untrue, following talks with his Iranian counterpart Hossein Amirabdollahian in Moscow.

Lavrov said Russia had received written assurances from Washington that sanctions against Moscow over Ukraine would not hinder cooperation within the framework of the deal, which lifted sanctions on Tehran in return for curbs on its nuclear programme.

The talks were paused last week, after Moscow has insisted Washington pledge not to impose sanctions on any trade between Russia and Iran once an agreement is signed.

Iran pumped 2.4m barrels per day on average in 2021, and has said it could eventually increase output to 3.8m bpd if sanctions are lifted.

Brent crude has fallen back below the $100 per barrel mark for the first time since the start of March.

Hope of progress in the Russia-Ukraine peace talks, and concerns that rising Covid cases in China will hit its recovery, have pushed oil prices to a two-week low.

Brent has now tumbled 8% to around $98 per barrel:

The surge in Covid-19 cases in China to a two-year high is raising fears of more lockdowns, hitting demand for energy at its factories.

Stephen Innes, managing partner at SPI Asset Management, explains:

Though global demand is widely expected to return to pre-covid levels this year, China is an important enough part of the worldwide demand picture that a new wave of lockdowns could prolong the recovery cycle.

Ceasefire talks between Russia and Ukraine are also easing fears of further supply disruptions.

Toshitaka Tazawa, an analyst at Fujitomi Securities, says:

“Expectations of positive developments in the Russia-Ukraine ceasefire talks bolstered hopes to ease tightness in the global crude market.

“Fresh lockdowns to curb the COVID-19 pandemic in China also raised concerns over slower demand.”

Brent hit a 14-year high of $139 at the start of last week, as the US pushed allies for a ban on Russian oil imports.

But crude prices have eased back since, despite president Biden announcing a US ban, with Europe resisting pressure to boycott Russian energy imports now.

UK fuel prices have hit new highs despite a slump in wholesale costs over the last week.

Figures from data firm Experian Catalist show the average cost of a litre of petrol at UK forecourts on Monday was 163.7p, up from 150p at the end of February.

This takes the cost of filling a typical 55-litre family car with petrol above £90 for the first time.

The average cost of a litre of diesel on Monday was a record 173.7p.

Yesterday, MPs heard that prices could rise by another 50% due to sanctions on Russia, which exports around 5 million barrels of crude per day.

Oil prices surged after Russia’s invasion of Ukraine but declined in recent days, leading to a cut in wholesale costs for fuel retailers.

RAC fuel spokesman Simon Williams says petrol retailers need to pass on the impact of falling crude prices:

“Drivers should be encouraged by oil and wholesale prices dropping again yesterday.

“It’s now vital that the biggest retailers who buy fuel most often start to reflect these reductions at the pumps to give drivers a much-needed break from the pain of constantly rising prices.”

Over in Germany, investor confidence has plunged at a record rate as the Russia-Ukraine war pushes Europe’s largest economy towards recession.

Economic sentiment tumbled by the most since the ZEW economic research institute began tracking it in December 1991.

It fell from 54.3 in February to -39.3 points this month, as the conflict and sanctions imposed on Russia threaten the recovery.

A measure of current economic conditions also slumped (to -21.4 from -8.1)

President Achim Wambach said that fears of surging inflation had also risen, following the jump in oil and commodity prices.

“A recession is becoming more and more likely. The war in Ukraine and the sanctions against Russia are significantly dampening the economic outlook for Germany.”

The collapsing economic expectations are accompanied by an extreme rise in inflation expectations. The experts therefore expect stagflation in the coming months.

The worsened outlook affects practically all sectors of the German economy, but especially the energy-intensive sectors and the financial sector.

The UK is also cutting off all export finance support to Russia and Belarus, a move which will also hit trade from Britain to both countries.

Britain will no longer issue any new guarantees, loans or insurance for exports to Russia and Belarus.

Export finance support helps companies win contracts, fulfil them, and get insurance in case their buyer defaults.

UK Export Finance (UKEF), the UK’s export credit agency, says it is still supporting trade with Ukraine with £3.5bn of capacity available “as part of its continuing and unwavering alliance”.

This backing would help UK exporters and Ukrainian buyers access the finance they need to trade commercially.

Without government export credit support, any financial backing from the private sector to the region is “virtually impossible”, UKEF says.

International Trade Secretary Anne-Marie Trevelyan says economic sanctions are working:

We are tightening the screws on Russia to ensure they feel real consequences for their illegal military invasion.

At the same time, we are doing everything we can to ensure Ukraine remains open to the world. We have signed an international treaty so that UK supplies can reach Ukraine and strengthen their defences, and UK Export Finance – our first-class export credit agency – is supporting them with this.

Labour MP Emily Thornberry, shadow Attorney General, says the government should have acted faster:

The Department for International Trade also reports that fifty-four licences for exports to Russia have been voluntarily surrendered by UK businesses, while 33 new licence applications to export items to support Ukraine have been submitted.

British car dealership Inchcape is also leaving Russia, having concluded that it is “no longer tenable” to operate there.

Inchcape, which operates in around 40 countries, told shareholders:

In light of the current circumstances, we have concluded that the Group’s ownership of its business interests in Russia is no longer tenable. Therefore, working in conjunction with our OEM partners, we have initiated a process to transition our Russian business.

We intend to do so in full compliance with international and local regulations and with the aim of safeguarding the continuing employment of our colleagues.

Russia provided around 10%, or £750m, of Inchcape’s sales last year and 5% of operating profits in the last five years.

Cigarette maker Imperial Brands is quitting Russia, joining the swelling ranks of Western companies exiting due to the Ukraine war.

Imperial said this morning it has begun negotiations with a local third party to transfer its Russian assets and operations, saying this was the best option for its 1,000 staff in Russia.

We believe that, in the current circumstances, an orderly transfer of our business as a going concern would be in the best interests of our Russian colleagues.

We employ 1,000 people in Russia in our sales and marketing operations and in our factory in Volgograd – and their safety and wellbeing is our key priority in this process. We will also continue to pay their salaries until any transfer is concluded.

Last week, Imperial, the maker of Winston and Davidoff cigarettes, suspended all operations in Russia.

On Friday, rival British American Tobacco announced it would pull out of Russia, having initially deciding to keep selling products.

Here’s our story on the latest UK economic sanctions on Russia:

The UK is imposing new tariffs on some Russian imports, including vodka, and announcing a ban on exports of some high-end luxury goods to Russia.

A new 35% tariff will be imposed on a range of goods imported from Russia, on top of existing tariffs, in the latest round of economic sanctions over the invasion of Ukraine.

The tariffs will affect £900m of imports, while the ban on luxury goods is likely to apply to luxury vehicles, high-end fashion and works of art.

Products affected by the new tariffs on Russian imports are:

• Iron, steel, fertilisers, wood, tyres, railway containers, cement, copper, aluminium, silver, lead, iron ore, residue/food waste products, beverages, spirits and vinegar (this includes vodka), glass and glassware, cereals, oil seeds, paper and paperboard, machinery, works of art, antiques, fur skins and artificial fur, ships and white fish

The government says the products were chosen to inflict maximum damage on the Russian economy while minimising the impact on the UK:

It adds:

The export ban will come into force shortly and will make sure oligarchs and other members of the elite, who have grown rich under President Putin’s reign and support his illegal invasion, are deprived of access to luxury goods.

The UK is also denying Russia and Belarus access to Most Favoured Nation tariff for hundreds of their exports, which will remove key benefits of WTO membership.

Chancellor of the Exchequer Rishi Sunak said:

Our new tariffs will further isolate the Russian economy from global trade, ensuring it does not benefit from the rules-based international system it does not respect.

These tariffs build on the UK’s existing work to starve Russia’s access to international finance, sanction Putin’s cronies and exert maximum economic pressure on his regime.