Commodity prices surge and shares sink as US discusses Russia oil ban

Stocks tumbled, commodity prices surged and the rouble sank after the US said it was discussing a ban on oil imports from Russia and investors digested the threat of a protracted escalation in energy prices.

Equity markets in Asia started the week sharply lower. Hong Kong’s Hang Seng led with a fall of 3.3 per cent, on track for its lowest close since the beginning of the pandemic. China’s CSI 300 fell 2.8 per cent and Japan’s Topix index shed 2.5 per cent.

Futures also pointed to sharp falls for European equities, with the Euro Stoxx 50 tipped to slide about 3 per cent and the FTSE 100 expected to fall 2.6 per cent. The S&P 500 was set to dip 1.3 per cent when trading begins on Wall Street later in the day.

Investors also sought safety in the dollar, prompting sharp falls for its peers. The rouble fell as much as 11.4 per cent to 138.5 against the dollar, marking a fresh record low for the Russian currency. The euro dipped 0.5 per cent to $1.09 while the Australian dollar dropped 0.6 per cent to $0.74. Expectations of further pressure on oil importer India pushed the rupee down almost 1 per cent in early trading.

The ructions in global stocks and currencies came as international benchmark Brent crude rose almost 18 per cent to $139.13 a barrel in early trading on Monday, its highest level since 2008, before paring gains to be up almost 10 per cent at $129.45. US marker West Texas Intermediate was up 8.4 per cent at $125.41.

The surge in oil prices came after US secretary of state Antony Blinken said Washington was in “very active discussions” with European allies. Nancy Pelosi, US House Speaker, said Congress was “exploring” legislation to ban the import of Russian oil.

“The world is very unprepared for this shock,” said Robert Rennie, global head of market strategy at Westpac. He said it was unclear if a US ban would cover only oil or all Russian energy imports, but said the latter would have a “catastrophic impact” on energy prices.

The prospect of expanded sanctions hitting Russian oil shipments has jolted global commodity markets already unsettled by the increasing difficulty of transacting with Russian providers. European natural gas futures closed Friday’s session up more than 170 per cent for the year to date.

Other commodities including palm oil and nickel have hit multiyear highs since the outbreak of war. On Monday, palladium, a key component of catalytic converters in cars, jumped as much as 5.4 per cent to a record high of more than $3,174 an ounce.

In Chinese markets, iron ore futures rose as much as 7.6 per cent to Rmb874.50 ($138.53) a tonne while nickel rose 12 per cent to a record high of Rmb210,950 a tonne.

Traders dumped riskier assets in favour of sovereign debt, pushing yields lower. The yield on the 10-year US Treasury fell 0.03 percentage points to just below 1.7 per cent.

Unhedged — Markets, finance and strong opinion

Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here to get the newsletter sent straight to your inbox every weekday