Investors are competing to reduce their exposure to oil-dependent industries as the highest oil prices in more than a decade raise concerns about the global economy and give a new blow to the sector just starting out of the pandemic.
Russia’s invasion of Ukraine unleashed the turmoil in the commodity market as a whole, sending Brent crude to levels not seen since just before the 2008 financial crisis, pushing European gas prices to new highs.
The outlook is that energy prices could rise further if other countries follow the United States in imposing oil bans on Russia and the Kremlin retaliates by shutting down its crude oil and gas supplies. It has driven the financial markets into a predicament.
Companies caught on the investor’s cross range from airlines to companies that rely on oil for their manufacturing processes. American airlines were hit hard by debt, which had the worst performance in the junk bond market, with its share declining by about one-fifth this month.
Wizz Air, a low-cost airline, is one of the most shunned European airlines, but Delta’s $ 600 million bond yield, which matures in 2029, is due to the Coronavirus Pandemic. It has soared to unseen levels since it devastated the aviation industry. The stocks and bonds of tire maker Goodyear Tire & Rubber have also been punished.
Brent crude, the international oil benchmark, surged to nearly $ 140 earlier last week, just a few dollars below the record set in July 2008. It settled at $ 112.67 a barrel on Friday, up 60% in the last 12 months. ..
“Given Russia’s important role in the world’s energy supply, the global economy could soon face one of the biggest energy supply shocks to date,” said an economist at Goldman Sachs. Expected to reach $ 175 barrels.
Commodity price spikes have eased by the end of last week, but economists and analysts have warned that high energy prices pose an increased threat to the health of businesses and key economies.
“This is an emergency,” said John Hess, head of Hess Corp, one of the largest oil producers in the United States, repeatedly warning from groups such as Occidental Petroleum and Pioneer Natural Resources, the United States, the world’s largest oil market. I mentioned the oil price of. Already at record highs, analysts expect them to continue to rise.
European Central Bank Governor Christine Lagarde warned last week that the invasion of Ukraine caused a “big shock” to the eurozone economy. Central banks have predicted rising inflation and lower growth over the next three years.
Soaring gas prices, which Russia counts as one of its major exports, have already hit European companies. Czech group Draslovka, the world’s largest manufacturer of sodium cyanide, has revealed that it had to stop production in Europe this weekend. Of the price increase.
The oil surge has so far exacerbated the challenges facing the Federal Reserve, which was already trying to curb inflation, and is expected to raise interest rates this week despite the post-aggression turmoil. increase.
But on Wall Street, there is growing concern that rising energy costs will ultimately hurt consumers and put pressure on US businesses. Last week, Goldman Sachs and Wells Fargo economists lowered US economic growth forecasts.
Bank of America credit analyst Oleg Melentyev said continued execution above $ 125 per barrel would hurt.
“Crunch stress can increase, credit spreads can widen, and far beyond that level, reaching $ 150 per barrel can even lead to a credit crunch,” he said.