The threat of additional sanctions against Russia has enabled global oil prices to remain elevated above $100 in spite of forecast weaker demand following a build in United States (US) crude stockpiles and an extended lockdown in Shanghai, China.
The price of Brent crude oil moderated around $106 (R1 553) per barrel yesterday after rising more than 1 percent to above $108 per barrel during early morning trade.
This means that it could take a while for domestic fuel prices to ease after petrol rose by 28 cents in April as the average Brent Crude oil price increased from $96.47 to $109.37 during the period under review.
The US and its European Union (EU) allies are preparing new sanctions on Moscow over alleged civilian killings in northern Ukraine.
The EU has proposed to ban Russian coal and to prevent Russian ships from entering EU ports while Britain also urged G7 and Nato countries to agree to a timetable to phase out oil and gas imports from Russia.
But Germany has expressed some reluctance about sanctions, especially saying that its economy’s dependence on Russian gas was difficult to break overnight.
ActivTrades senior analyst Ricardo Evangelista said the Brent oil prices were trading almost flat as the prospect of additional Western sanctions on Russian exports, which normally would be expected to trigger a sharp rise in oil prices, were counterbalanced by news of an extension of Shanghai’s lockdown and surprisingly high US crude inventories.
US crude inventories rose by 1.1 million barrels last week, defying market expectations for a 2.1 million barrel decline as the world’s largest economy started releasing strategic oil reserves.
Demand concerns in China also resurfaced after authorities extended a lockdown in Shanghai on Tuesday to cover all of the financial centre’s 26 million residents.
Evangelista said the new sanctions proposed by Western allies would leave Russian oil and gas exports untouched.
“As an EU ban on Russian oil imports remains possible – but is far from guaranteed – and demand side pressure eases due to the ongoing Covid-19 shutdown in China, the price of the barrel is likely to remain around the current levels in the near term, despite the stiffer stance from the West in relation to Moscow’s invasion of Ukraine,” he said.
Meanwhile, South African markets yesterday traded in the red amid fears of aggressive rate hikes ahead of the US Federal Reserve (Fed) meeting and prospects of a new round of sanctions on Russia.
The JSE All Share Index fell by 1.4 percent to a one-week low of 74 241 index points by 4pm, dragged down by tech, luxury goods and commodities stocks.
Losses inintraday trade were led by heavyweights like Prosus, which fell by 5.7 percent to R792.31 per share, followed by Richemont at 5.6 percent to R181.68 per share, Naspers at 5.2 percent to R1 681 and Anglo American Platinum at 5 percent to R1 862 per share.
FNB Wealth and Investment head of equity research Chantal Marx said the JSE had followed other international markets which turned bearish following the Fed’s hawkish comments.
The Fed Governor Lael Brainard stated that he expected a combination of interest rate increases and a rapid balance sheet run off to bring US monetary policy to a "more neutral position" later this year, with further tightening to follow as needed.
Markets are now betting on a 50 basis points interest rates hike in April, along with a quicker balance sheet reduction.
Marx said the local market was not reacting too well to the Fed’s tone.
“Generally, equities respond quite negatively to hawkish monetary policy rhetoric,and that would include any sort of talk around interest rates increases or a reduction in asset purchases,” Marx said.
“We are seeing that coming through from the US at the moment, and the implication is also that if there are more hawkish and tightening monetary policy, the South African Reserve Bank will have to follow suit.”
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