Oil jumps 5% as Caspian pipeline disruption adds to supply fears

Oil prices jumped 5 per cent to over $121 a barrel on Wednesday as a weather-related disruption to Russian and Kazakh crude exports via the Caspian Pipeline Consortium (CPC) pipeline added to worries over tight global supplies.

Brent crude futures were up $5.95, or 5.1 per cent, at $121.43 a barrel as of 12:01 p.m. EDT (1501 GMT). U.S. West Texas Intermediate (WTI) crude futures rose $5.24, or 4.8 per cent, to $114.51 a barrel.

The CPC pipeline has been in the spotlight as the market is on edge over the ripple effect of heavy sanctions on Russia, the world’s second-largest crude exporter, after its invasion of Ukraine, which Moscow calls a “special military operation.”

Crude oil exports from Kazakhstan’s CPC terminal on Russia’s Black Sea coast stopped fully on Wednesday after damage caused by a major storm and continued bad weather, a port ship agent and the head of CPC said.

Russian Deputy Prime Minister Alexander Novak later said that oil supplies by the CPC may be completely stopped for up to two months.

The CPC pipeline carries around 1.2 million barrels per day of Kazakhstan’s main crude grade, which accounts for 1.2 per cent of global demand.

“Prices are primarily rising on the loss of CPC Blend crude exports out of Novorossiisk … adding further bullish fuel to the fire as the drop in Russian crude exports finally appears under way,” said Matt Smith, lead oil analyst for the Americas at Kpler.

U.S. President Joe Biden is set to announce more Russian sanctions when he meets with European leaders on Thursday in Brussels, including an emergency meeting of NATO. Russia refers to the invasion, which is now a month old, as a “special operation.”

European Union member countries remain split on whether to ban imports of Russian crude and oil products, but this might change once short-term contracts run out.

“You’ll know at the end of April what the total loss of Russian oil is,” said Trafigura’s Ben Luckock, at the FT Commodities Global Summit. He said it was possible that oil could reach $200 a barrel.

Russia to seek payment in rubles for gas sales from ‘unfriendly’ countries, Putin says

Russia will seek payment in rubles for gas sales from “unfriendly” countries, President Vladimir Putin said on Wednesday, sending European gas prices soaring on concerns the move would exacerbate the region’s energy crunch.

European countries’ dependence on Russian gas and other exports has been thrown into the spotlight since Moscow’s Feb. 24 invasion of Ukraine and the subsequent imposition of Western sanctions aimed at isolating Russia economically.

“Russia will continue, of course, to supply natural gas in accordance with volumes and prices … fixed in previously concluded contracts,” Putin said at a televised meeting with top government ministers.

“The changes will only affect the currency of payment, which will be changed to Russian rubles,” he said.

Russian gas accounts for some 40 per cent of Europe’s total consumption and EU gas imports from Russia have fluctuated between 200 million to €800-million ($880-million) a day so far this year. The possibility a change of currency could throw that trade into disarray sent some European and British wholesale gas prices up around 15-20 per cent on Wednesday.

The Russian ruble briefly leapt to a three-week high past 95 against the dollar before settling close to 100 after the shock announcement.

Putin said the government and central bank had one week to come up with a solution on how to move these operations into the Russian currency and that gas giant Gazprom would be ordered to make the corresponding changes to gas contracts.

With major banks reluctant to trade in Russian assets, some big Russian gas buyers in the European Union were not immediately able to clarify how they might pay for gas going forward.

“At the moment, we do not yet wish to comment. We will be in touch once we have formed an opinion,” said a spokesman at Germany’s Uniper.

Moscow calls its actions in Ukraine a “special military operation” to disarm and “denazify” its neighbour. Ukraine and Western allies call this a baseless pretext for a war of choice that has raised fears of wider conflict in Europe.

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According to Gazprom, 58 per cent of its sales of natural gas to Europe and other countries as of Jan. 27 were settled in euros. U.S. dollars accounted for about 39 per cent of gross sales and sterling around 3 per cent.

The European Commission has said it plans to cut EU dependency on Russian gas by two-thirds this year and end its reliance on Russian supplies of the fuel “well before 2030.”

But unlike the United States and Britain, EU states have not agreed to sanction Russia’s energy sector, given their dependency.

The Commission, the 27-country EU’s executive, did not immediately respond to request for comment.

There are questions over whether Russia’s decision constitutes a breach of contract rules.

“This would constitute a breach to payment rules included in the current contracts,” said a senior Polish government source, adding that Poland has no intention of signing new contracts with Gazprom after their current long-term agreement expires at the end of this year.

Russia drew up a list of “unfriendly” countries, which corresponds to those that imposed sanctions. Among other things, deals with companies and individuals from those countries have to be approved by a government commission.

The list of countries includes the United States, European Union member states, Britain, Japan, Canada, Norway, Singapore, South Korea, Switzerland and Ukraine.

Some of these countries, including the United States and Norway, do not purchase Russian gas.

Stocks bounce as investors raise rate hike expectations

U.S. stocks rebounded Tuesday as traders digested Federal Reserve Chair Jerome Powell’s latest rate hike comments.

The Dow Jones Industrial Average rose about 255 points, or 0.7%. The S&P 500 added 1.1%, and the Nasdaq Composite rallied nearly 2%.

Stocks were coming off a volatile session Monday, as Powell said “inflation is much too high” and vowed to take “necessary steps” to curb inflation. The comments came less than a week after the Fed raised rates for the first time since 2018.

“The anticipation turned out to be worse than the actual event and now the messaging that we heard yesterday … sets us up to be prepared for the worst, but hope for the best,” Liz Young, head of investment strategy at SoFi, told CNBC’s “Fast Money Halftime” on Tuesday.

Some market participants raised their expectations for rate hikes as Powell said the Fed could move the benchmark rate by a greater magnitude than previously forecast.

“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” said Powell on Monday to the National Association for Business Economics. One basis point equals 0.01%.

Goldman Sachs on Monday upped its forecast to 50 basis point hikes at the May and June Fed meetings. UBS chief U.S. economist Jonathan Pingle in a note Monday said, “We think odds of a 50 bp rate hike are rising.”

The benchmark 10-year U.S. Treasury yield on Tuesday hit 2.392% at the highs of the session, its highest level since May 2019.

Bank stocks rose Tuesday along with interest rates. JPMorgan gained about 2%, and Bank of America rose around 3%.

Technology stocks, which struggled Monday after Powell’s comments, rebounded Tuesday. Big Tech names Alphabet, Meta and Amazon all gained more than 2%, providing support to the indexes.

Nike shares moved up more than 2% after the retailer reported a beat on the top and bottom lines for its fiscal third quarter, buoyed by strong demand in North America.

Investors on Tuesday continued to watch the situation in Eastern Europe, with President Joe Biden saying Russian President Vladimir Putin’s back is “against the wall” as the war with Ukraine nears a stalemate.

The three major averages are on pace to finish the month positive. The S&P 500 is up about 3% in March, while the Dow and Nasdaq are each more than 2% higher on the month.

Zebedee steps down as LNG Canada CEO, will join Suncor Energy as a vice-president

Peter Zebedee is stepping down as LNG Canada chief executive officer to join Suncor Energy Inc. as a vice-president.

His exit takes effect on March 29, nearly 33 months after he took over the top job at LNG Canada, which is building an $18-billion terminal to export liquefied natural gas from Kitimat, B.C.

Shell PLC is the largest partner in LNG Canada, with a 40-per-cent stake. The other partners are Malaysia’s state-owned Petronas (25 per cent), PetroChina (15 per cent), Japan’s Mitsubishi Corp. (15 per cent) and South Korea’s Kogas (5 per cent).

Prior to LNG Canada, Mr. Zebedee served as general manager of Shell’s Scotford oil refinery near Edmonton.

“The progress that the LNG Canada project has made in the past three years has been truly remarkable, especially in the context of a global pandemic,” he said in a statement on Tuesday.

Steve Corbin, executive project director at LNG Canada, has been named as interim CEO of the Kitimat project.

Mr. Zebedee’s role at Calgary-based Suncor will be executive vice-president of mining and upgrading, taking effect in April. He will be replacing the retiring Mike MacSween.

LNG Canada estimates project-related costs will total $40-billion for the first phase, counting the Kitimat terminal and various infrastructure that includes the Coastal GasLink pipeline to be operated by TC Energy Corp.

Coastal GasLink will transport natural gas from northeast British Columbia to the Kitimat terminal, where LNG is slated to be exported to Asia starting in 2025. The total budget also includes billions of dollars a year to be spent by producers drilling for natural gas in northeast B.C.

While Coastal GasLink has been approved by 20 elected First Nation councils along the 670-kilometre route, the pipeline project has been the target of protests led by a group of Wet’suwet’en Nation hereditary chiefs who say a 190-kilometre portion of the route goes through unceded territory under their jurisdiction.

The Fed is expected to reach 2.25% on the fed funds rate by the end of the year and a peak of 2.75% by September 2023, according to futures.

Traders are betting Federal Reserve Chair Jerome Powell’s tough inflation talk means the central bank will step on the gas to drive up interest rates even faster than expected just last week.

In the fed funds future markets, odds are rising that the Federal Reserve will become more aggressive and raise interest rates by 50 basis points — or a half-percent — at each of its next two meetings. According to the CME FedWatch Tool, the probability is better than 70% that the Fed reaches 2.25% by the end of the year.

Powell surprised the market when he spoke at the National Association for Business Economics on Monday. He said that “inflation is much too high,” adding that the central bank “will take the necessary steps to ensure a return to price stability.” Fed funds futures for May and June have moved higher, as they did across the rest of the year and into 2023.

Ralph Axel, a rates strategist at Bank of America, said there are now 1.184 basis points or 4.7 additional quarter-point rate hikes priced into fed funds futures by July. “There’s a 73% chance of a 50 in May, and a 63% chance of a 50 in June,” he said. The July futures are priced for a quarter-point move.

The market is pricing in more rate hikes than the Fed presented in its own forecast last week. The central bank raised rates by a quarter-point last Wednesday and released its forecast for six more 25-basis-point rate hikes by the end of the year. A basis point is equal to 0.01%.

A tougher stance on inflation

Powell said Monday that the Fed would be tough on inflation. He said that, if necessary, he supported an even faster pace of interest rate increases, with the possibility for rate hikes that are larger than 25 basis points.”

The Fed chief acknowledged that central bank officials and many economists “widely underestimated” how long inflationary pressures from Covid would last. He said those pressures were made worse by the war in Ukraine, which has driven the price of oil and other commodities sharply higher.

Goldman Sachs economists late Monday boosted their forecast to include half-point hikes in both May and June and four more quarter-point hikes for the rest of the year.

The market now expects the Fed to reach a high end rate, or terminal rate, before it stops the tightening cycle. According to the futures market, the fed funds rate is expected to reach 2.75% to 3% by September 2023.

“The terminal rate has been skyrocketing,” in the futures market, said Wells Fargo’s Michael Schumacher.

Schumacher said that after peaking, the futures begin to show expectations for the fed funds rate to drop. It reaches the level of a first quarter-point rate cut by June 2024. The futures show the rate flattening out to 2% into 2025.

“You can ask yourself will they walk this back like they did in March, or are they going to roll with it?” said Axel. He said the market has priced a tightening cycle that follows the pattern of the one in 2017 through 2018, which was then followed by three cuts in 2019.

“It’s been a fast-forward of a full cycle,” said Axel. “You look at all the hikes priced in then all the cuts.”

The Treasury market has also moved sharply to reflect higher interest rates and an inflation-fighting Fed. The two-year note, which most reflects Fed policy, was yielding 2.16% Tuesday, and the 10-year note was at 2.37%.

“The change in tone and the inflation reality have both gotten more challenging in the last few weeks. The market moves are just incredible. There’s truly been no place to hide,” said Schumacher.

CP Rail to restart

Canadian Pacific Railway Ltd and union Teamsters Canada Rail Conference have agreed to a binding arbitration over a labour dispute, allowing for operations to resume from Tuesday at the country’s second-largest railroad.

The company halted operations and locked its workers out early on Sunday, sparking calls for a quick negotiated end to the work stoppage over fears that it could aggravate a shortage of commodities caused by Russia’s invasion of Ukraine.

Canadian Pacific said on Tuesday it would immediately begin work to resume normal train operations across the country.

“While arbitration is not the preferred method, we were able to negotiate terms and conditions that were in the best interest of our members,” union spokesperson Dave Fulton said in a statement.

Normal operations will continue at CP during the arbitration period, Minister of Labour Seamus O’Regan Jr, who mediated the talks, said in a statement.

CP had notified the union last week that it would lock out employees on Sunday, barring a breakthrough in talks on a deal covering pensions, pay and benefits. It said the key bargaining issue is the union’s request for higher pension caps.

The union reiterated on Tuesday that demands on wages and pensions still remain stumbling blocks.

The CP strike is the latest blow to Canada’s battered supply chain, which last year weathered floods in British Columbia that suspended access to the country’s biggest port.

The country’s last major railway labour disruption was an eight-day Canadian National Railway Co strike in 2019. However, there have been 12 stoppages due to poor weather, blockades or labour issues, according to the Western Canadian Wheat Growers Association.

European stocks are expected to open lower on Tuesday as investors continue to monitor the war in Ukraine and economic developments in the United States.

European stocks are expected to open lower on Tuesday as investors continue to monitor the war in Ukraine and economic developments in the United States.

The U.K.’s FTSE index is seen opening 2 points lower at 7,448, Germany’s DAX 50 points lower at 14,303, France’s CAC 40 down 29 points at 6,554 and Italy’s FTSE MIB 29 points lower at 22,653, according to data from IG.

Investors continue to watch the situation in Ukraine as ongoing peace talks between Moscow and Kyiv fail to make progress. On Monday, Ukraine refused to surrender the port city of Mariupol to Russian forces following an ultimatum from Moscow.

President Volodymyr Zelenskyy told Eurovision News that ultimatums won’t work as trapped Ukrainians will “fight till the end.”

U.S stock index futures were flat in overnight trading after Federal Reserve Chair Jerome Powell said the central bank is open to higher rate hikes to combat rising inflation.

Wall Street’s Monday trading session was volatile as Powell vowed to take “necessary steps” to curb inflation less than a week after the agency raised rates for the first time since 2018. Powell said “inflation is much too high” and added that rates could increase more than the previously approved 25 basis points if needed.

Shares in Asia-Pacific were mixed in Tuesday trade, as China Eastern Airlines shares fell after the carrier’s Boeing 737 passenger jet crashed in southern China on Monday.

Market watchers are also monitoring the omicron subvariant as it spreads across Europe along with one of the worst Covid-19 outbreaks in China since 2020.

There are no major data releases on Tuesday; earnings come from Kingfisher.

Saudi Arabia says it ‘won’t bear any responsibility’ for a shortage of oil supplies

https://www.foxnews.com/world/saudi-arabia-responsibility-oil-prices

Before the Bell: March 21

Equities

Wall Street futures were uneven early Monday as crude prices remain volatile and investors cautiously watch developments in Ukraine. Major European markets were choppy. TSX futures turned positive.

Ahead of the North American open, futures linked to all three key indexes wavered throughout the early premarket period. Last week, the S&P added more than 6 per cent for its best weekly showing since 2020. The Dow gained more than 5 per cent while the Nasdaq finished the week up 8.1 per cent. The S&P/TSX Composite Index finished Friday’s session up 0.22 per cent, ending at a record high.

“There appears to be a growing disconnect between what markets are doing and what is happening on the ground in Ukraine and the increasingly brutal measures that Russian forces are taking in trying to wear down resistance to their occupation, including the use of hypersonic missiles,” Michael Hewson, chief market analyst with CMC Markets U.K., said.

“While markets appear to be focusing on the fact that peace talks are taking place, there is also little evidence that they are actually leading anywhere, given the distance between the two sides in respect of what they will accept.”

Reuters reported Turkey’s foreign minister said on Sunday that Russia and Ukraine were nearing agreement on “critical” issues and he was hopeful for a ceasefire if the two sides did not backtrack from progress achieved so far.

Elsewhere, China’s Civil Aviation Administration of China (CAAC) said a Boeing 737 carrying 132 people crashed in mountains in south China on Monday. Flight data shows the Boeing 737-800 jet was just over an hour into its trip from the southern city of Kunming to Guangzhou, near Hong Kong, when it suddenly lost altitude.

In this country, a work stoppage at CP rail is entering its second day

More than 3,000 CP Rail conductors, engineers, train and yard workers represented by Teamsters Canada Rail Conference are off the job after the two sides failed to reach a deal before a weekend deadline set by the union and the company. The disruption has raised concerns about the impact on the already strained supply chain and has put pressure on Ottawa to help find a resolution.

On Wall Street, Nike Inc. reports earnings after the close of trading.

Overseas, the pan-European STOXX 600 was up 0.04 per cent at midday. Britain’s FTSE 100 rose 0.44 per cent. Germany’s DAX slid 0.11 per cent while France’s CAC 40 edged fell 0.18 per cent.

In Asia, markets in Japan were closed. Hong Kong’s Hang Seng fell 0.89 per cent, erasing early gains.

Commodities

Crude prices jumped in early going, driven by the possibility of EU sanctions on Russian oil.

The day range on Brent is US$107.06 to US$112.91. The range on West Texas Intermediate is US$104.08 to US$109.77. Both benchmarks were up by more than 3 per cent in early going after gaining more than 1 per cent last week.

Talks are scheduled this week between U.S. President Joe Biden and European Union governments for a series of summits aimed at toughening sanctions against Russia in response to the attack on Ukraine. EU governments will weigh whether to join the U.S. in placing an embargo on oil from Russia, Reuters reports.

CMC’s Michael Hewson also said Monday’s price gains also followed attacks by Houthi rebels on various Saudi Aramco oil and gas sites across Saudi Arabia over the weekend.

“Some production was temporarily disrupted, with the attack another unwelcome reminder of the uncertainty currently affecting global oil markets at this time,” he said.

In other commodities, gold prices rose as investors again opted for safer holdings.

Spot gold rose 0.2 per cent to US$1,924.45 per ounce. U.S. gold futures were down 0.3 per cent at US$1,924.00.

Currencies

The Canadian dollar was little change while its U.S. counterpart held relatively steady against a group of global counterparts.

The day range on the loonie is 79.12 US cents to 79.44 US cents.

“High oil prices are providing some support for the CAD but the broader relaxation in market volatility is helpful in underpinning the CAD near recent range lows,” Shaun Osborne, chief FX strategist with Scotiabank, said.

“There is little new news to focus on for the CAD at the start of the week and there is little in terms of domestic data to focus on this week. That leaves the CAD still largely at the mercy of the external environment (risk mood) and the USD in the short run.”

There were no major Canadian economic releases on Monday’s calendar.

The U.S. dollar index, which measures the greenback against six peers, was slightly firmer at 98.335.

The euro was at US$1.1038, 0.17-per-cent lower, and Britain’s pound was at US$1.3156 off 0.16 per cent with the future direction of both dependent on the war in Ukraine, which has hurt expectations of European economic growth, according to Reuters.

Barrick Gold has ended a long-running dispute with Pakistan and will now start to develop one of the world’s biggest gold and copper mining projects under an agreement signed on Sunday. Under the out-of-court deal, an $11-billion penalty slapped against Pakistan by a World Bank arbitration court and other liabilities will be waived and Barrick and its partners will invest $10 billion in the project, Pakistan Finance Minister Shaukat Tarin said.

Warren Buffett’s Berkshire Hathaway Inc has struck an $11.6-billion deal to buy Alleghany Corp , the owner of reinsurer TransRe, just weeks after the 91-year-old billionaire bemoaned the lack of good investment opportunities. Alleghany adds to Berkshire’s already large insurance portfolio, which includes Geico auto insurance, General Re reinsurance and a unit that insures against major and unusual risks. Founded in 1929 by railroad entrepreneurs Oris and Mantis Van Sweringen, New York-based Alleghany operates mainly in property and casualty reinsurance and insurance through subsidiaries and investments.

Economic news

(12 p.m. ET) U.S. Fed Chair Jerome Powell speaks at the NABE Economic Policy Conference in Washington.

With Reuters and The Canadian Press