Crude Spikes After US Bans Russia’s Oil Imports

The news shaping the markets today

Russia suspended the sale of foreign currencies till September 9, which provided support to the US dollar index this morning.

Fitch Ratings lowered Russia’s Long-Term Foreign Currency Issuer Default Rating from ‘B’ to ‘C’, exerting pressure on the RUB/USD forex pair.

Australia’s Consumer Sentiment Index fell 4.2% from a month ago to 96.6 points in March. However, the AUD/USD pair rose in forex trading this morning.

Japan’s economy expanded 4.6% on an annualised basis in the fourth quarter, versus a 2.8% contraction in the previous quarter. The JPY/USD forex pair remained under pressure due to the strengthening dollar.

New Zealand’s manufacturing sales grew 1.2% year-over-year in the third quarter of 2021, versus a 6.4% decline in the earlier period, sending the NZD/USD pair higher in forex trading this morning.

What’s happening: Crude oil rose on Tuesday, following an announcement from Washington to ban imports from Russia.

What happened: Oil prices rose close to $130 per barrel on Tuesday, after US President Joe Biden announced a ban on oil imports from Russia following the invasion on Ukraine.

With a surge in energy prices, the wholesale price for electricity rose sharply to €500 per megawatt hour in one of the major European countries.

Why it matters: Oil prices have been on an upswing following Russia’s attack on Ukraine. Prices rose further on Tuesday after US President Joe Biden announced a ban on Russia’s oil imports and the EU said it had plans to lower its dependency on energy from Moscow.

Russia is the world’s second-biggest exporter of petroleum, exporting around 4.5 million barrels of crude and oil products every day.

Although crude prices rose sharply following the announcement from Washington, it pared some gains later in the session. Market experts projected a limited impact of the US ban, as oil prices are already elevated.

“This is the tightest fundamental backdrop in years and the developments in Russia/Ukraine have ignited a market that was already a coiled spring,” RBC Capital Markets analyst Michael Tran said in a note to clients.

A surge in gasoline and diesel prices have resulted in more pain for Europe’s consumers, with the wholesale price of electricity in Spain climbed to €500 per megawatt hour, Repsol CEO Josu Jon Imaz said at the CERAWeek in Houston.

WTI crude for April delivery gained $4.30, or 3.6%, to close at $123.70 per barrel on the NYMEX, easing from the session’s high of $129.44. Oil prices had closed Monday’s trading at the strongest level since September 22, 2008. May Brent crude added $4.77 to settle at $127.98 per barrel on ICE Futures Europe, after closing at its highest since April 5, 2012 on Monday.

April gasoline gained 11 cents to $3.68 a gallon, after hitting a record high in the session. April natural gas fell 30 cents to $4.53 per million British thermal units on Tuesday.

What to watch: Traders will keep an eye on the Russia-Ukraine conflict and the announcement of sanctions and bans by other nations, as crude continues to climb to its highest level in 14 years.

JP Morgan and Bank of America analysts have projected oil prices to rise between $185 and $200 per barrel in case countries continue to ban Russian oil exports.

Traders also await the release of date on crude oil stockpiles data from the EIA (Energy Information Administration) today. US crude oil inventories had declined by 2.597 million barrels in the week ended February 25 and are expected to decline by 0.657 million barrels in the latest week.

The markets today

The British pound will be in focus today after remaining volatile on Tuesday

Context: The GBP/USD forex pair settled mostly flat on Tuesday amid growing concerns related to the Russia-Ukraine crisis.

Details: The GBP/USD forex pair has recently been under pressure due to strength in the US dollar, with traders preferring safe-haven options due to Russia’s invasion of Ukraine.

During Tuesday’s session, the sterling tumbled to its weakest level against the US dollar since November 2020.

The surging energy prices remain in focus. UK Prime Minister Boris Johnson indicated that the government plans to announce a new supply strategy to lower its dependency on Russia’s energy. The country is looking to phase out imports of oil and oil products from Russia by the end of this year.

“The big question is whether central banks will primarily see this as a further indication of inflationary pressures that needs to be responded to with tighter monetary policy or as an escalation of the downside risks for economic growth,” Lloyds Bank analysts said in a note.

The Bank of England is set to announce its policy decision on March 17 and markets still expect the central bank to hike interest rates.

The sterling fell as low as $1.3079, before turning positive later in the session. The GBP/USD forex pair settled almost flat at $1.3102 on Tuesday. Against the euro, the pound fell around 0.5% to 83.19 pence.

UK’s FTSE 100 gained 0.07% to close at 6,964.11 on Tuesday, recovering slightly from the five-month low recorded in the previous session.

What to watch: The ongoing Russia-Ukraine conflict will remain the major talking point, which is widely expected to impact movements in the GBP/USD forex pair.

With no major economic data scheduled for release today, traders will await the release of Friday’s data on gross domestic product, industrial production and balance of trade from the UK.

Other Markets: US indices closed lower on Tuesday, with the Dow Jones, S&P 500 and Nasdaq 100 down by 0.56%, 0.72% and 0.39%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Japan’s machine tool orders, France’s payroll employment, Italy’s industrial production, India’s money supply M3, Brazil’s industrial output and net payrolls, Mexico’s inflation rate, US MBA mortgage applications and job openings, Russia’s foreign exchange reserves, consumer price index, corporate profits and gross domestic product, Germany’s current account, South Africa’s SACCI business confidence index, as well as Argentina’s industrial production.