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Energy prices rally as US considers ban on Russian oil imports

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Oil and natural gas prices rose sharply on Monday as the prospect of a western embargo on Russian crude sparked concerns that a global raw materials supply crunch will get worse.

Brent crude, the international benchmark, surged to a high of $ 139 – a level last hit 14 years ago – after the US said it was in “active discussions” to ban Russian oil imports. Prices for European gas, a fuel that is used across industries, also hit a new peak, spiking by almost 80 per cent.

Stockpiles of many key commodities were already running low before Russia invaded Ukraine late last month, just as the global economy was revving up in the aftermath of coronavirus lockdowns. However, the war in eastern Europe has deepened concerns over supply disruptions.

Darren Woods, chief executive of oil supermajor ExxonMobil, said on Monday the soaring crude price had been exacerbated by a lack of investment in the sector during the pandemic-induced downturn. “I think it’s going to be a tough time,” Woods told CERAWeek at S&P Global, an industry event in Texas.

“Global oil markets are in the throes of the biggest crisis for decades,” said Ehsan Khoman, head of emerging markets research for Emea at MUFG. “Oil’s rally will accelerate inflation, rates will go much higher, financial conditions will tighten significantly, consumers will be squeezed and corporate activity will be jolted. Recessionary territory is on the horizon. ”

Monday’s shifts in energy markets came after Antony Blinken, US secretary of state, said Washington was in “very active discussions” with European allies over an oil ban following Russia’s invasion of Ukraine.

German chancellor Olaf Scholz later pushed back against the idea of ​​a European embargo on Russian oil imports, arguing that he wanted to focus on “sustainable” pressure that would not be too much of a burden on citizens.

“All our steps are designed to hit Russia hard, and be sustainable over the long term,” Scholz said in a statement. “At the moment, Europe’s supply of energy for heat generation, mobility, power supply and industry cannot be secured in any other way. It is therefore of essential importance for the provision of public services and the daily lives of our citizens. ”

Oil prices fell from their high following Scholz’s comments, with Brent pulling back to around $ 120. Gas also slipped from the day’s high of € 345 a megawatt hour to trade at about € 214.

Meanwhile, in one of the most extraordinary moves ever seen on the London Metal Exchange, the benchmark nickel contract surged more than 60 per cent to a 15-year high of above $ 47,500 a tonne, as those holding short positions rushed to cover their trades.

Russia is the leading supplier of high grade nickel, which is used in the batteries that power electric vehicles. With big shipping companies suspending bookings to and from the country, there are fears of a supply crunch.

“We are seeing an increasing likelihood of disruptions to Russia’s mined commodity exports,” said Marius van Straaten, commodity strategist at Morgan Stanley. “Although current sanctions are not directly impacting metals and bulks exports, there is a growing sense that many buyers are looking to disassociate themselves from Russia’s commodities where possible.”

Global equities traded choppily as investors debated the economic implications of the conflict. In the US, Wall Street’s S&P 500 and the tech-heavy Nasdaq Composite both dropped 2 per cent.

Europe’s regional Stoxx 600 share index, which last week declined 7 per cent in its worst performance since March 2020, fell more than 3 per cent in early deals before trimming its losses to close 1.1 per cent lower.

In currencies, the euro fell 0.4 per cent to $ 1.09, around its weakest level against the dollar since May 2020. The ruble weakened to Rbs150 against the dollar, marking a record low for the Russian currency.

Additional reporting by Erika Solomon in Berlin and Myles McCormick in Houston

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