May 27, 2022

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Oil prices fall as lockdowns in China raise demand concerns

Oil prices fall as lockdowns in China raise demand concerns

Oil prices fell on Monday amid optimism about Peace talks Between Ukraine and Russia eased concerns about supply levels while new Lockdowns against the Corona virus Raised in China the possibility of lower energy demand.

Brent crude, the global benchmark, settled down 6.8 percent at $112.48 a barrel, while US West Texas Intermediate crude fell 7 percent to $105.96.

Oil markets have swung violently over the past week, with daily moves of at least 5 percent each day, as traders grapple with the latest developments from Russia and China, as well as Saudi Arabia where an oil storage facility was bombed on Friday.

On Monday, the authorities announced strict closures in Shanghai, the main financial center in China. China is the world’s largest oil importer, and Warren Patterson, an analyst at ING, said, “This measure once again highlights that China is not willing to abandon its no-Covid policy and therefore remains a downside risk to the market.”

Ukrainian President Volodymyr Zelensky said Kyiv was ready to discuss Russian demands such as pledging to remain neutral and abandon its bid to join NATO if Russia withdrew its forces, raising hopes of an end to a conflict that has soared energy and commodity prices. .

Lower oil prices helped ease the turmoil in US Treasuries, which were sold off earlier in the session as traders bet the Federal Reserve will raise interest rates to tackle high inflation.

Higher energy costs have been a major component of high global inflation, which is undermining demand for fixed income securities such as Treasuries by driving down the value of interest. Brent crude is still about 15 percent above its closing level on February 23, on the eve of the Russian invasion of Ukraine.

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The two-year Treasury yield, which moves inversely with its price, rose as much as 0.11 percentage point early in the day, before giving up most of the gains to trade 0.04 percentage point higher, at 2.34 percent. The yield on the 10-year Treasury fell 0.04 percentage point to 2.45 percent, after exceeding 2.5 percent in previous trading.

Despite volatile trading in Treasuries, the US dollar held steady against other major currencies on Monday, reflecting continued bets on monetary policy tightening.

“The market is recording a spike in inflation, and central banks are being forced to respond aggressively, leading to an economic slowdown,” said Luca Paolini, chief strategist at Pictet Asset Management.

The five-year Treasury yield on Monday rose above the 30-year yield for the first time since 2006, before slipping back to a fraction below that of long-term bonds.

A so-called yield curve inversion of this type reflects concerns that the Fed’s attempt to fight inflation may, over time, lead to lower growth or even a recession.

The dollar rose 1.5 percent against the Japanese yen to buy 123.88 yen, the highest level since 2015 as the Bank of Japan took steps to maintain loose monetary policy while the Federal Reserve raises interest rates. The pound fell 0.8 percent against the dollar to $1.31.

In stocks, Wall Street’s S&P 500 rose for the third consecutive session, rising 0.7 percent, while the tech-dominated Nasdaq Composite rose 1.3 percent. Electric car maker Tesla was the biggest driver of the gains, jumping more than 7 percent after it said it was considering a stock split.

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The European stock index Stoxx 600 rose 0.3 percent. Asian bourses were mixed, with Japan’s Topix closing down 0.4 percent and Hong Kong’s Hang Seng adding 1.3 percent.