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Powerful Sanctions Hit Risk Appetite

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

We’re seeing widespread risk aversion once more on Monday after new severe sanctions were levied against Russia over the weekend.

The response to previous sanctions was underwhelming, to say the least, but the latest batch undoubtedly has the teeth that the others lacked. That’s been most clearly evident in the FX markets, where the rouble plunged more than 30% to record lows and that could have been much worse but for swift action by the central bank.

An emergency rate hike – raising the key rate from 9.5% to 20% – alongside other measures, has enabled the rouble to pare those initial losses but the currency remains under severe pressure. The latest sanctions are hard-hitting and will weigh heavily on the economy. And that’s before we see the second-round effects.

BP has shown us today the political pressure that companies are going to be under to sever ties with Russia, especially where there’s shared interest with the Kremlin. The level of horror at the events in Ukraine being experienced around the world, combined with that political pressure, will continue to see companies cut ties which will compound the impact of the sanctions.

Whether we continue to see more risk-aversion in the markets may well hang on the talks currently taking place between Russian and Ukrainian officials. It’s hard to imagine a ceasefire and Russian exit being agreed upon given the events of the last week but we live in hope.

An agreement would naturally lift sentiment and we could see stocks quickly reversing their losses. A failure could see things turn ugly again as Russia will not take these sanctions lying down. They will have massive implications for the Russian economy and retaliation is almost certain.

Oil eyeing $100 again as the US considers another SPR release and a nuclear deal

Oil prices are naturally rallying strongly at the start of the week. Brent and WTI are both closing in on $100 once again and only a significant de-escalation looks likely to derail that. If the talks end badly today, we could see oil continue its ascent as markets factor in prolonged fighting in Ukraine and the risk of supply disruptions.

Talks are continuing between the US and Iran towards a nuclear deal which could help ease some of the pressures in the oil market. But we may not see the full benefits of that unless we see an agreement between Russia and Ukraine, at which point we could see a significant pullback in the price.

The US and other consuming countries are also reportedly considering another release of reserves totalling 60-70 million barrels. This comes after a similar move in November that had only a limited impact on the markets. But combined with actions elsewhere, it could help ease the pressures we’re seeing.

Gold jumps as safe-havens in demand

Gold is back above $1,900 in risk-averse trade and up around 1.5% on the day. The events over the last few days have no doubt escalated tensions, although talks between Russia and Ukraine do offer some hope. The sanctions, in particular, add another layer of uncertainty to the situation which investors naturally don’t like.

We’re in a highly uncertain, inflationary environment and gold is the obvious hedge. The question is how much further it can go which obviously depends on how much more of an escalation we’ll see and what that does to commodity prices. But for now, it’s very well supported, despite easing slightly off its highs.

Bitcoin lower but resilient

Bitcoin is also lower on the day as traders abandon risk assets in favour of safe-havens. It’s continuing to show resilience though which will encourage the crypto crowd. As long as it continues to weather the storm and hold above $30,000, there will be a belief that it can thrive again once risk appetite improves. Unfortunately, there’s just no clear idea of when that will be.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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