Oil surges 17% to $108 after 28% weekly rally, rattling Asian markets amid ME tensions
- Oil bounds above $100 a barrel, Brent makes big strides.
- Wall St, Nikkei futures dive, yields up on inflation risk.
- Dollar in demand as source of liquidity, euro skids.
Share futures fell sharply in Asia on Monday as the inflationary pulse from surging oil prices threatened to raise living costs, and perhaps interest rates, across the globe, while an investor hunger for liquidity kept the US dollar in demand.
Brent jumped 17% to $108.73 a barrel, having already soared 28% last week, while US crude rose 19% to $108.33 per barrel.
Iran named Mojtaba Khamenei to succeed his father, Ali Khamenei, as supreme leader, signalling that hardliners remain firmly in charge in Tehran a week into its conflict with the United States and Israel.
With no sign of an end to hostilities in the Middle East and tankers still not daring to cross the Strait of Hormuz, investors were bracing for a long stretch of higher energy costs. O/R
“The global economy remains dependent on the concentrated flow of Mideast oil and natural gas through the Strait of Hormuz,” noted Bruce Kasman, chief economist at JPMorgan.
“The near-term scenario is a near-term spike towards $120 bbl followed by moderation as the conflict soon subsides,” he added. “But absent a clear and decisive political resolution, Brent crude oil prices are expected to settle at an elevated $80 bbl through mid-year.”
Such an outcome could cut global economic growth by an annualised 0.6% for the first half of this year, and raise consumer prices by an annual rate of 1%, he said.
Kasman cautioned that a broader and sustained conflict could send oil above $120 a barrel and risk a global recession.
Wall Street led the way down in early trade as S&P 500 futures ESc1 shed 1.6%, while Nasdaq futures dived 1.7%.
Japan’s Nikkei futures NKc1 sank to 52,400, down drastically from Friday’s cash close of 55,620.
In bond markets, the risk of rising inflation outweighed safe-haven considerations, and 10-year Treasury note futures TYc1 slid 13 ticks, while three-year futures dropped 22 ticks.
Investors sought the liquidity of dollars while shunning currencies from countries that are net energy importers, including Japan and much of Europe.
The dollar firmed 0.3% to 158.35 yen, while the euro slipped 0.7% to $1.1537.
Gold eased 0.6% to $5,140 an ounce, with dealers speculating that investors would have to book profits where they could to cover losses elsewhere.
