Soaring Oil Prices Hit Stocks; S&P 500 down 3%

Wall Street suffered its biggest decline in more than a year on Monday as another jump in oil prices threatened to reduce inflation’s grip on the global economy.

The S&P 500 fell nearly 3%, its biggest drop in 16 months, after a barrel of US oil jumped to $130 overnight on the possibility that the United States could ban imports from from Russia. Stocks around the world also fell earlier in the day, taking inspiration from the moves in oil.

The benchmark S&P 500 index fell 127.78 points to 4,201.09. The Dow Jones Industrial Average fell 797.42 points, or 2.4%, to 32,817.38.

The Nasdaq composite slipped 482.48 points, or 3.6%, to 12,830.96. The high-tech index is now 20.1% lower than its record set in November. Such a drop means the index is now in what Wall Street calls a bear market. The S&P 500 is down a more modest 12.4% from its peak reached in early January.

Gold and some jitters on Wall Street also rose, but not as much as when oil prices peaked. The price of gold briefly rose above $2,000 an ounce before stabilizing at $1,995.90, up 1.5%.

“It could go on for some time as tensions in Ukraine persist, as oil prices remain high,” said Sam Stovall, chief investment strategist at CFRA. “The longer and longer oil prices remain, the greater the erosive impact they will have on economic growth.” Oil prices have recently soared on fears that Russia’s invasion of Ukraine could upset already tight supplies. Russia is one of the world’s largest energy producers and oil prices were already high before the attack as the global economy demands more fuel after its coronavirus-caused shutdown.

U.S. House Speaker Nancy Pelosi said in a letter to her colleagues on Sunday that “the House is currently considering strong legislation” to further isolate Russia over its attack on Ukraine. This could include a ban on imports of Russian oil and energy products, she said.

It’s a major step that the US government has yet to take, despite a long list of measures to punish Russia, as the White House has said it hopes to limit disruptions to oil markets. He wants to limit price swings at the gas pump.

Reports have also indicated that US officials may consider easing sanctions against Venezuela. This could potentially free up more crude oil and ease concerns about dwindling supplies from Russia.

A gallon of regular fuel already costs an average of $4,065 across the country after breaking the $4 barrier on Sunday for the first time since 2008. A month ago, a gallon cost an average of $3,441, according to the auto club AAA.

The average gasoline pump price in Arkansas on Monday was $3.69, according to AAA, 46 cents higher than last week and nearly 60 cents higher than a month ago. Last year, the average was $2.56 per gallon for regular unleaded gasoline.

The International Energy Agency, made up of the United States and 30 other countries, said last week that there would be a release of nearly 62 million barrels from their reserves to counter the effect of the rise. crude oil prices. However, AAA said that amount would not have much impact because it is small compared to the amount that flows daily from Russia to other countries around the world.

Average pump prices are lower in northwest Arkansas and higher in southern Arkansas, according to AAA data. Prices in Hot Springs, Pine Bluff, Texarkana and West Memphis were above the state average on Monday. Prices were lowest in Fort Smith, Jonesboro and the northwest Arkansas metro area.

In the Little Rock-North Little Rock area, the average price was $3.69, about 48 cents higher than last week and 64 cents higher than a month ago. Last year the average price was $2.49 per gallon.

In the Fayetteville-Spring-dale-Rogers area, the average price was $3.61, about 41 cents higher than last week and 52 cents higher than a month ago. Last year it was $2.62.

The average price in Jonesboro on Monday was $3.62, about 40 cents higher than last week and 51 cents higher than a month ago. Last year it was $2.57.

In Texarkana, the average price was $3.93, about 53 cents higher than last week and 71 cents higher than a month ago. Last year it was $2.66.

A barrel of U.S. crude oil settled at $119.40 a barrel on Monday, up 3.2%, after hitting $130.50 earlier. Brent crude, the international standard, stood at $123.21 a barrel, up 4.3%, after rising above $139 previously.

Meanwhile, shares of smaller companies also fell sharply. The Russell 2000 Index fell 49.57 points, or 2.5%, to 1,951.33.

Markets around the world have tumbled wildly recently on concerns over rising prices for oil, wheat and other commodities produced in the region due to Russia’s invasion, igniting inflation already high in the world. In the United States, prices for consumers jumped last month from their level a year ago at the fastest pace in four decades.

The conflict in Ukraine threatens food supplies in some regions, including Europe, Africa and Asia, which depend on the vast fertile agricultural lands of the Black Sea region, known as the “breadbasket of the world”.

PRESSURE ON FED

The war is putting further pressure on central banks around the world, with the Federal Reserve set to raise interest rates later this month for the first time since 2018. Higher rates are slowing the economy, which will hopefully help curb high inflation. But if the Fed raises rates too high, it risks plunging the economy into a recession.

“Their reaction to geopolitics can’t really be gauged, so there’s uncertainty around that,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.

The global economy was already struggling with high inflation due to the pandemic. The Fed and other key central banks now face the delicate task of tightening monetary policy to contain the cost of living without upending economic expansion or shaking risky assets.

“There is no easy map for navigating market volatility,” said Saira Malik, Chief Investment Officer at Nuveen. “Volatility is normal at the end of business cycles and is necessary to some degree to generate positive returns in any environment. Investors fear, however, that this latest market disruption could precipitate the end of the cycle.” Some Investors saw the war in Ukraine as potentially pushing the Fed to ease rate hikes.Investors like low rates because they tend to drive up prices in stocks and all kinds of markets.

But that may not necessarily be the case this time around, Goldman Sachs economists wrote in a report. With the prices of oil, wheat and other commodities likely to rise further, there is a greater threat that high and sustained inflation will take hold in the economy. This could upset the traditional Fed playbook.

“After several decades in which economic, financial or political shocks have invariably driven interest rates down, markets may need to relearn that the reverse can also be true,” wrote Jan Hatzius, economist at Goldman Sachs. .

RUSSIAN OIL

A sharp drop in oil and natural gas supplies from Russia would create major problems for both industrial users and consumers. Russia is one of the world’s top oil producers and around 60% of the country’s oil exports go to Europe, according to the International Energy Agency. Russian oil accounted for about 3% of all crude shipments arriving in the United States last year, according to data from the US Energy Information Administration. When other petroleum products – such as unfinished fuel oil that can be used to produce gasoline and diesel – are included, Russia accounted for around 8% of oil imports in 2021.

Cutting Russian oil would force many refineries that normally process it to find other sources. Although petroleum is a relatively flexible commodity, there are many different grades of crude, and a refiner cannot always substitute one for the other.

On Saturday, Shell, Europe’s biggest oil company, said it bought a shipment of Russian crude oil because supplies from “alternative sources would not have arrived in time to avoid market supply disruptions. “. Beyond the sanctions imposed on Russia by governments for its invasion of Ukraine, companies are also imposing their own sanctions. The list of companies leaving Russia has grown to include Mastercard, Visa, American Express and Netflix.

The value of the Russian ruble continued to slide amid all the financial pressures, dropping 12% to 0.7 cents.

Treasury yields climbed. The 10-year yield fell from 1.72% to 1.78%.

Information for this article was provided by Stan Choe, Alex Veiga, Damian J. Troise, and Yuri Kageyama of The Associated Press; by Stanley Reed of the New York Times; by Nathan Owens of the Democrat-Gazette; and by Jennifer Jacobs and Ari Natter of Bloomberg News (WPNS).

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Steve R. Hansen