Pre-market: Russian oil price cap could shake the market

The Russian government makes as much money from energy exports as before the invasion. Meanwhile, inflation is rising globally, adding to political pressure on heads of state such as US President Joe Biden, UK Prime Minister Boris Johnson and French President Emmanuel Macron.

“The goal here is to starve Russia, starve Putin of his main source of money, and drive down the price of Russian oil to help mitigate the impact of Putin’s war at the pumps,” he said. a senior US administration official to CNN.

Why it’s needed: European customers cut imports from Russia even before the bloc’s partial embargo took effect. But a rise in exports to Asia helped offset much of those losses. China – taking advantage of huge price discounts – imported 2 million barrels of Russian oil a day for the first time last month. India’s imports also soared, hovering around 900,000 barrels per day in May.

Revenue from Russian oil exports rose by $1.7 billion in May to around $20 billion, according to the International Energy Agency. That’s well above the 2021 average of around $15 billion.

The United States could punish countries that continue to do business with Russia. But that would cause further chaos in oil markets, which leaders are desperate to avoid as gasoline prices remain near record highs.

If China and India were to find substitutes for Russian crude, the price of oil could easily top $200 a barrel, Darwei Kung, portfolio manager for commodities at DWS, told me. It is currently trading above $112 a barrel.

With price caps, barrels of Russian oil could theoretically still make their way to the world market, avoiding another supply crunch – but Moscow wouldn’t be able to continue raking in big profits.

The Biden administration has been pushing for that option in recent days, and German officials have indicated an openness to discussing it. But key details remain unclear.

What is missing: how, when and to what extent the price of Russian oil could be capped remains to be seen. Officials said the precise mechanism for hitting the cap was still being worked out. It would also need broad international support to be effective.

One method could be to prohibit companies based in G7 countries from providing insurance for oil shipments if buyers pay above a certain price.

Still, Kung warned that adding complexity to energy markets could increase friction and make transactions more difficult, driving prices higher than they otherwise would be.

“The more complicated the system, the more likely it is to present challenges,” Kung said. “[The] market system works because, in a way, it is very simple. It’s very effective.”

Stocks rise as investors reduce Fed angst

The stock market has been driven this year by what investors think the Federal Reserve will do next and whether they think the central bank will be able to get inflation under control quickly.

As the second quarter draws to a close, a certain optimism is setting in. The S&P 500 rebounded strongly on Friday, posting its biggest one-day percentage gain in more than two years and ending a three-week losing streak. The index is up again in premarket trading on Monday.

The jump followed the release of the University of Michigan’s final consumer sentiment reading for June, which fell to a record high.

But there was a bit of good news. Long-term inflation expectations fell from 3.3% mid-month to 3.1%, a slight improvement.

Federal Reserve Chairman Jerome Powell said June’s initial reading was “eye-catching.”

That could mean the Fed doesn’t need to raise interest rates another three-quarters of a percentage point at its next meeting. A half-percentage-point hike would still be aggressive, but wouldn’t be as seismic.

However, much will depend on forthcoming data. The Fed’s favorite inflation gauge arrives on Thursday. If it is higher than economists predict, it could again upset the calculation.

What the annulment of Roe v. Wade means for the economy

The United States Supreme Court’s decision to overturn Roe v. Wade is sending political shockwaves across the country as politicians and activists plot their next steps and protesters take to the streets.
This may not sound like a story to journalists who cover the economy and the markets. But ending the constitutional right to abortion will have economic consequences, reports Anneken Tappe, my colleague at CNN Business.

Families not ready to raise a child could face financial hardship, while mothers forced into childbirth could struggle to access higher education or move up the socio-economic ladder. This would affect the labor force and economic output, and could increase the need for government support, economists say.

“This decision will cause immediate economic pain in 26 states where abortion bans are most likely and where people already face lower wages, less worker power and limited access to health care.” , Heidi Shierholz, president of the Progressive Institute for Economic Policy, said in a statement. statement released on Friday. “The fall of Roe will be an additional economic barricade.”

The sentiment was echoed by Treasury Secretary Janet Yellen. In testimony before the Senate, she said restricting women’s reproductive rights would have “very detrimental effects on the economy.”

“Roe v. Wade and access to reproductive health care, including abortion, has helped increase labor force participation,” Yellen said. “It has allowed many women to complete their education. It has increased their earning potential. It has allowed women to plan and balance their families and careers.”

Next

Nike (NKE) publishes its results after the US markets close.

Also today: Durable goods orders for May appear at 8:30 a.m. ET.

Coming tomorrow: Investors will be combing through US consumer confidence data for June for signs that inflation may be prompting Americans to spend less.

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