Crude oil hit a more than seven-year high Tuesday on optimism the global recovery will ramp up demand, but concerns about the end of long-running central bank support and rising Treasury yields saw most equity markets reverse early gains.
After an almost uninterrupted rally from the early days of the pandemic, world markets are showing signs of levelling out as global finance chiefs shift from economy-boosting largesse to measures aimed at reining in inflation.
Still, there is an expectation that equities will enjoy further gains this year as countries reopen and people grow more confident about travel, especially as studies suggest the more prevalent Omicron coronavirus variant appears to be milder and as vaccines are rolled out.
Analysts are also watching the corporate earnings season that is underway, with hopes that firms can match their stellar performances last year.
But while Asian markets started the day brightly after Monday’s travails, traders returned to selling, with US Treasury yields surging on expectations the Federal Reserve will have to unveil several interest rate hikes to tackle a worrying spike in inflation. Wall Street was closed Monday.
Tokyo, Hong Kong, Sydney, Seoul, Singapore, Taipei, Mumbai, Bangkok and Jakarta all fell.
There were gains in Shanghai in hopes of fresh economy-boosting measures, while Wellington and Manila also edged up.
London, Paris and Frankfurt all fell at the open.
But oil built on its early promise, with Brent climbing to $88.13 a barrel and WTI hitting $85.74, both levels not seen since October 2014.
The gains came thanks to demand optimism as the world reopens and concerns about Omicron ease. The loosening of travel restrictions in several countries has seen jet fuel costs soar.
Hopes for more monetary easing by major consumer China to reinforce its stuttering economy were also seen as key support for the oil market.
– Brent tipped to break $100 –
Another factor in the latest bump was the claim of an attack by Yemen’s Huthi rebels in Abu Dhabi that triggered a fuel tank blast killing three people Monday, with the group warning civilians and foreign firms in the United Arab Emirates to avoid “vital installations”.
The news fuelled concerns about supplies from the crude-rich region.
“The suspected drone attack in Abu Dhabi underscores the ongoing threat against civilian and energy infrastructure in the region amid heightened regional tensions,” said Torbjorn Soltvedt at-risk intelligence company, Verisk Maplecroft.
“Reports of damage to fuel trucks and storage will concern oil market watchers, who are also keeping a close eye on the trajectory of ongoing nuclear talks between the US and Iran,” he added.
“With negotiators running out of time, the risk of a deterioration in the region’s security climate is rising.”
Meanwhile, OANDA’s Craig Erlam said OPEC nations and other key producers struggling to meet targets to lift output by 400,000 barrels a month was adding to upward pressure.
“The evidence suggests it’s not that straightforward and the group is missing the targets by a large margin after a period of underinvestment and outages,” he said in a note.
“That should continue to be supportive for oil and increase talk of triple-figure prices.”
Goldman Sachs has forecast the rally in oil prices to continue, with the Wall Street titan saying it could break $100 next year for the first time since July 2014.