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Oil prices have been climbing ever since the global economy started to recover from Covid-19. Now, as the United States warns that Russia could imminently invade Ukraine, they’re pushing even higher.
What’s happening: Brent crude futures, the global benchmark, rose above $96 per barrel on Monday before falling back slightly. Prices, which are now near their highest level since 2014, could weigh on economic growth and make the world’s inflation problem even worse.
“No one can really read the mind of President Putin,” UBS oil analyst Giovanni Staunovo told me. But a disruption to supply as a result of conflict between Russia and Ukraine could send oil above $100 per barrel for the first time in more than seven years, he said.
Russia is one of the world’s top producers of oil and natural gas. Investors are worried that conflict with Ukraine could damage energy infrastructure in the region, and that sanctions on Russia by Western nations could hit the country’s exports.
There are also concerns that Putin could weaponize exports of oil and gas to put pressure on Europe, which is dependent on Russia for its energy supplies.
The situation is especially delicate given the strain already on oil markets. Demand for energy is soaring as pandemic-era restrictions are lifted and travel picks back up, while inventories are stretched thin.
There’s been pressure on the Organization of the Petroleum Exporting Countries and key allies like Russia, a group known as OPEC+, to increase supply. But OPEC+ is already struggling to meet its stated goals.
“If the persistent gap between OPEC+ output and its target levels continues, supply tensions will rise, increasing the likelihood of more volatility and upward pressure on prices,” the International Energy Agency said in a report last week.
Saudi Arabia and the United Arab Emirates could do more, but Staunovo thinks this is unlikely to happen unless the situation really escalates.
Last week, Natasha Kaneva, JPMorgan’s head of global commodities strategy, said that oil prices could “easily” rocket to $120 per barrel if Russia’s crude exports are affected by tensions with Ukraine “in a context of low spare capacity in other regions.”
Why it matters: Higher oil prices could shock the economies of countries that consume lots of oil and hurt consumers’ already-strained pocketbooks.
The average price of a gallon of gas in the United States rose to nearly $3.49 on Monday, up from $3.31 one month ago and $2.51 this time last year.
“With inflation currently at multi-decade highs and uncertainty surrounding the inflation outlook already unprecedented, the last thing the recovering global economy needs is another leg higher in energy prices,” Janet Henry, chief economist at HSBC, told clients earlier this month.
There’s more: Fears of a Russian invasion aren’t just roiling the oil market. Global stocks dropped on Monday, too. The sell-off was sharpest in Europe, where Germany’s DAX is off 2.2% and France’s CAC 40 is 2.3% lower.
Companies ended 2021 on a strong note
There’s plenty of concern in markets about a potential Russian invasion of Ukraine and interest rate hikes by the Federal Reserve.
But behind all the volatility, analysts are pointing to a bright spot: Companies continue to mint very strong profits, a dynamic that could keep stocks from falling too far despite selling pressure.
The latest: Almost three-quarters of S&P 500 firms have reported results for the last three months of 2021. According to FactSet analyst John Butters, 77% have beat Wall Street’s expectations, which is above the five-year average.
S&P 500 companies are now expected to grow fourth-quarter earnings by more than 30%, based on results that have already posted and projections for those still on deck.
That said: Expectations for the future are getting hazier. For the first quarter of 2022, 47 companies have said they expect lower profits than previously forecast, while only 17 have raised their outlook.
Liz Ann Sonders, chief investment strategist at Charles Schwab, told me that she thinks we’ve reached an “inflection point” for earnings.
In the thick of the pandemic, companies struggled to predict the future and withdrew their earnings guidance. That encouraged analysts to be extra conservative — which in turn made it easier for firms to beat expectations. That dynamic is changing.
“For six quarters in a row, we pretty much just had a bar that was set too low,” Sonders said. “I think that tide has now turned.”
Crypto takes over the Super Bowl
The Los Angeles Rams have defeated the Cincinnati Bengals in Super Bowl LVI — but they’re not the only ones celebrating a big moment.
Cryptocurrency companies spent big to advertise in Sunday’s game as the industry ramps up efforts to court sports fans.
Crypto exchange Coinbase said it had to throttle traffic for a few minutes after running a Super Bowl ad featuring a bouncing QR code that took users to a landing page that touted a bitcoin giveaway for new users.
The company’s chief product officer tweeted that Coinbase “just saw more traffic than we’ve ever encountered.”
FTX, another crypto exchange, featured comedian Larry David, while Crypto.com — which recently bought the naming rights to Los Angeles’ Staples Center, now the Crypto.com Arena — got LeBron James on board.
Investor insight: Bitcoin is attempting to push higher after a rough few months. Its price has risen 11% in February after pulling back sharply in December and January. It was last trading near $42,600 after hitting an all-time high of nearly $69,000 in November.
Coinbase, meanwhile, has been hit hard alongside other companies that recently went public. Its stock is down 23% this year. Investors have been dumping some riskier stocks as the Federal Reserve prepares to start hiking interest rates.