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Turmoil as Russia Invades Ukraine

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By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

Massive risk-aversion is sweeping through financial markets on Thursday in response to Russia’s invasion of Ukraine.

The Russian offensive started in the early hours of the morning in Europe and has been occurring across the country. The mood turned increasingly negative as the morning progressed, with headlines and images displaying the atrocities taking place in Ukraine.

The knee-jerk reaction has been severe across the board and with the situation deteriorating by the hour, we could see further risk-aversion over the coming days. There remains huge uncertainty about how far Russia will go in Ukraine and what the knock-on effects will be across the globe, which could continue to weigh heavily on risk appetite.

This comes at a time when the global economy was already facing numerous challenges as it emerges from the pandemic. There will no doubt be consequences for the global economy, with recent moves in the oil and gas market compounding those pressures that were already being felt by households and businesses this year.

It also creates enormous uncertainty for central banks around the world as, on the one hand, higher oil and gas prices will intensify the inflationary pressures that they’re already trying to fight with rate hikes. But on the other hand, if they suppress economic activity and weigh on demand, it could help alleviate some of those pressures they’re most concerned about.

As it stands, we’re not seeing any massive shift in interest rate expectations but that could change if energy prices continue to rise in response to the Kremlin’s actions in Ukraine. In many ways, Russia has passed the point of no return as painful economic sanctions are coming. Just how painful that will be for them and the rest of the world is still to be determined.

Oil above $100 and could keep going

Oil prices are soaring in response to the Russian invasion of Ukraine as traders are forced to price in sizeable risk premiums associated with the conflict. The market is already extremely tight and unable to easily contend with supply issues and, barring a shift in approach from certain producers with excess capacity, that’s not going to change.

With oil prices well above $100 – up around 7% on the day – and gas prices surging once more, the question becomes just how far they will go. There’s enormous uncertainty around how bad the situation will become in Ukraine and what impact that will have on supplies of oil and gas. The knee-jerk reaction has been strong and we could see prices settle if no further major escalations occur. Unfortunately, that’s a massive “if” given how today has progressed.

Gold could eye highs after the invasion

Gold prices are spiking as traders are drawn to the traditional safe haven in these turbulent times. The conflict in Ukraine brings enormous uncertainty which strengthens gold’s appeal as both a safe haven and an inflation hedge. The price has already hit its highest level since September 2020 and could have further levels in its sights.

The next big test will be $2,000, where it has only traded above briefly in August 2020, hitting a high that month around $2,072. The worse the situation becomes in Ukraine, the more likely it is that we’ll see those levels once more.

Bitcoin suffers as traders head for safety

Bitcoin has come under significant pressure on Thursday as events in Ukraine have punished risk assets. It’s down more than 5% on the day but is a little off its lows. It didn’t quite fall as low as $33,000 to test the January bottom but that could come if the situation in Ukraine deteriorates further. Investors are scrambling for safe havens and it’s clear that bitcoin doesn’t fall into that category. If $33,000 does fall, attention will shift back to $30,000 which will be a major test. A break of this would be a massive psychological blow.

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Crude Oil

Oil Prices Slide as U.S. Crude Stockpiles Surge, Heightening Demand Concerns

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Oil prices declined on Thursday as concerns over demand intensified due to a larger-than-anticipated build in U.S. crude stockpiles.

Brent crude oil, against which Nigerian oil is priced, dropped by 0.5% to $83.25 a barrel while U.S. West Texas Intermediate crude oil fell by 0.3% to $78.28 a barrel.

The Energy Information Administration’s report revealed a substantial increase in U.S. crude oil stockpiles by 4.2 million barrels to 447.2 million barrels for the week ending February 23rd.

This surge surpassed analysts’ expectations and marked the fifth consecutive week of rising inventories.

While gasoline and distillate inventories witnessed a decline, concerns regarding a sluggish economy and reduced oil demand in the U.S. were amplified.

Satoru Yoshida, a commodity analyst with Rakuten Securities, highlighted that the significant stockpiles have heightened investor worries.

Moreover, the anticipation of delayed U.S. interest rate cuts further weighed on market sentiment, potentially undermining oil demand.

Traders have adjusted their expectations for rate cuts, with an easing cycle predicted to commence in June rather than March as previously anticipated.

Market participants await the U.S. personal consumption expenditures price index for insights into inflation trends, while the possibility of an extension of voluntary oil output cuts from OPEC+ looms over price dynamics, amid lingering uncertainty in the demand outlook and geopolitical tensions in the Middle East.

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Crude Oil Shortage Threatens Dangote, Government Refineries, Minister Raises Alarm

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The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has sounded a clarion call over a looming crude oil shortage that threatens the operations of the newly inaugurated Dangote Petrochemical Refinery and government-owned refineries in Nigeria.

Addressing stakeholders at the seventh edition of the Nigeria International Energy Summit in Abuja, Minister Lokpobiri expressed concerns that unless deliberate efforts are made to increase investments and crude oil production, these refineries may struggle to obtain enough feedstock for petroleum product manufacturing.

The Dangote refinery, a colossal project spearheaded by Dangote Industries Limited, has a daily requirement of up to 650,000 barrels of crude oil, while government-owned refineries could need approximately 400,000 barrels.

However, the current pace of crude oil production and investment in Nigeria falls short of meeting these demands.

Minister Lokpobiri highlighted the need to ramp up production and attract investments in the upstream sector to ensure adequate feedstock supply for the refineries.

He emphasized the importance of efficiently utilizing Nigeria’s abundant oil and gas reserves to enhance domestic energy security and economic prosperity.

Furthermore, the minister underscored the significance of investing in energy infrastructure and transitioning towards more environmentally friendly practices to address Nigeria’s energy needs effectively.

The alarm raised by Minister Lokpobiri underscores the urgency for strategic interventions and collaborative efforts to mitigate the impending crude oil shortage and secure the future of Nigeria’s refining industry amidst evolving global energy dynamics.

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Energy

NNPCL Pledges End to Nigeria’s Energy Scarcity Within a Decade

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Mele Kyari - Investors King

The Nigerian National Petroleum Company Limited (NNPCL) has announced a bold initiative aimed at ending Nigeria’s persistent energy scarcity within the next decade.

Mele Kyari, the Group Chief Executive Officer of NNPCL, revealed this ambitious plan during the opening ceremony of the seventh Nigerian International Energy Summit in Abuja.

Kyari’s announcement comes as a beacon of hope for millions of Nigerians grappling with chronic power shortages and energy deficiencies.

In his statement, Kyari expressed confidence that all issues related to energy scarcity in the country would be resolved within the next 10 years.

Assuring stakeholders of NNPCL’s unwavering commitment, Kyari emphasized the company’s dedication to collaborating with partners to bridge the energy deficit gap and foster prosperity for all Nigerians.

He highlighted NNPCL’s pivotal role as a key partner to oil-producing companies in Nigeria, facilitating the divestment of international oil companies from onshore and shallow water assets in the country.

Furthermore, Kyari underscored NNPCL’s statutory mandate as the enabler of national energy security, emphasizing the importance of sustainable production from divested assets to ensure energy security for Nigerians.

In addition to addressing domestic energy challenges, NNPCL is also exploring avenues for sustainable energy investment across Africa.

Kyari revealed the company’s intention to invest in the proposed African Energy Bank, aiming to secure funding for energy projects on the continent and guarantee regional energy security.

The event, attended by prominent stakeholders including government officials and representatives from international organizations, marks a significant step towards reshaping Nigeria’s energy landscape and fostering economic development through improved energy access.

As NNPCL charts its course towards energy abundance, Nigerians remain cautiously optimistic about the prospects of a brighter energy future.

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