As peace negotiations for the crisis in Ukraine drag on without clear results and the U.S. central bank struggles to contain inflation amid warnings of a probable recession, oil prices rose again, and equities markets remain nervous.
As of Wednesday morning, Brent crude was trading about $121.34 per barrel, up more than 5.1% since the market opened. Investors are looking forward to seeing how authorities will balance post-pandemic recovery and an approaching economic crisis.
“Physical shortages, linked to current sanctions on Russia, though will eventually play a more dominant role in oil price determination,” said Vivek Dhar, the Commonwealth Bank of Australia’s director of Energy.
Markets are still largely producing oil by “assessing the likelihood of a diplomatic solution to the Ukraine conflict.”
Progress in peace talks that would indicate the end of Russia’s invasion of Ukraine lowered oil prices last week, but limited supplies and ceasefire-agreement problems have pushed commodities’ prices back up. Turkey, a crucial negotiator, stated that a ceasefire is possible but that the timing is uncertain.
Yemeni Houthi militants stormed a Saudi Aramco refinery over the weekend, causing a sharp decrease in oil output. Oil inventories are at multi-year lows globally. This development comes as Western allies explore sanctioning Russian oil.
In recent weeks, the Treasury yield curve has flattened significantly, with the difference between 2-year and 10-year notes falling to 21 basis points — the lowest since the start of the pandemic two years ago. A curve’s inversion is often connected with an economic recession; however, it is not a sure forecast.
Markets expected Russia to default on its interest commitments, but Moscow managed to make a payment last week. However, additional payment deadlines are approaching, including a $615 million debt due this month and a $2 billion bond in early April.