Oil brushes $116 as stocks waver amid tensions

Oil prices were pushed to dizzying heights Thursday as investors maneuvered around Russian energy products. West Texas Intermediate, the U.S. oil benchmark, reached $116 per barrel in premarket trading for the first time since 2008. Prices calmed in afternoon trading in response to hopes that a nuclear deal between the United States and Iran could soon add more oil to the market.

The three major U.S. indexes opened higher but turned negative in morning trading and continued to waffle. The Dow closed down 0.3 percent, while the broader S&P 500 index was down 0.5 percent, and the Nasdaq swung about 1.6 percent lower.

“The drop in prices is really symptomatic of the uncertainty associated with the situation in Ukraine,” Wayne Wicker, chief investment officer at Mission Square Retirement, told The Washington Post. “Investors should be prepared for a wide range of returns on a day-by-day basis given the number of issues that are in flux at the moment. ”

Stocks rallied Wednesday after Federal Reserve Chair Jerome H. Powell signaled to the House Financial Services Committee that he would support a smaller increase in interest rates than some investors had priced in as the central bank tries to rein in inflation. Powell said Russia’s war in Ukraine has “highly uncertain” implications for the U.S. economy, and he signaled that the Fed would be nimble in its response.

Investors typically look past geopolitical tensions, but stocks have been gyrating in tandem with trends in the news since the invasion of Ukraine began last week. Russia’s role as one of the world’s biggest energy producers means that the effects of sanctions, and Russia’s array of possible responses, could trickle through the U.S. economy, further fueling inflation that has surged to a 40-year high.

The financial markets loathe uncertainty, and the conflict is compounding the tangle of tensions that spurred a volatile start to 2022 trading. Before the conflict in Ukraine erupted, companies were already being vexed by labor shortages, a deeply distressed global supply chain, soaring inflation and continued threats from the coronavirus.

More than 1 million refugees have fled Ukraine since the invasion began, according to the U.N. high commissioner for refugees, in an exodus that is set to become Europe’s worst humanitarian crisis this century.

Gold, a Russian export and investor haven in times of international turmoil, continued its upward march Thursday, edging up about 1 percent to trade around $1,940 per troy ounce.

“Investors will struggle to find a reason to pile back in aggressively in stocks until a major de-escalation with the Ukraine-Russia conflict occurs and inflation shows signs of easing,” Edward Moya, senior market analyst with OANDA, said Thursday in comments emailed to The Post.

Prices for aluminum, nickel and wheat, which are other exports tied to Russia and Ukraine, also have risen to multiyear highs.

This week, the U.S. government and its European allies introduced sweeping penalties that banned all people in the United States and the European Union from trading with Russia’s central bank. The sanctions also apply to Russia’s Finance Ministry and the country’s sovereign wealth fund.

On Thursday, the Biden administration unveiled further sanctions targeting Russian oligarchs, including Alisher Usmanov, the owner of an iron and steel conglomerate whom Forbes has estimated to be worth more than $15 billion. The White House said that Usmanov’s property will be blocked from use in the United States, including his superyacht and his private jet, which is one of Russia’s largest privately owned aircraft.

In recent days, officials have also moved to bar several major Russian banks from SWIFT, a global monetary transfer service, and prevent Russia’s central bank from bailing out the domestic economy. Other costs are piling up: 33 countries, including the United States, Canada and European Union members, have closed their airspace to Russian planes, a move that Russia has reciprocated and will probably to drive up travel costs.

International sports organizations have been severing ties with Russia and stripping the country of the right to hold major events. Automakers such as Mercedes-Benz and Volkswagen have halted exports to Russia, while furniture giant Ikea said it would close its Russian stores, pause production in the country and stop exporting goods there.

The value of the ruble plunged to less than 1 cent this week as Russia felt the full weight of the sanctions. The Russian central bank has kept the country’s stock market closed for several days in an effort to stanch the flow of money out of the economy, which was already showing severe distress before the new measures were implemented. Last week, as Russia’s incursion into Ukraine unfolded, Moscow’s MOEX index endured one of the steepest equity crashes in stock market history.

Russian stocks listed outside the country have also felt the pain. Index provider MSCI said Wednesday that it would eject Russian stocks from its emerging markets indexes, arguing that the country’s equity market has become “uninvestable.” On Thursday, the London Stock Exchange blocked trading in the stocks of 27 companies with close Russian ties, including the energy giants Gazprom, Lukoil and Rosneft.

The good news is that the U.S. economy has “negligible direct exposure to the Russian economy,” and the staggering weakness in Russian markets shouldn’t spill over to U.S. equities, according to Jeff Buchbinder, an equity strategist at LPL Financial.

“The U.S. imports almost nothing from Russia, or Ukraine, for that matter,” Buchbinder said Thursday in comments emailed to The Post.

He estimated that the percentage of revenue generated by S&P 500 companies in Russia is even lower but acknowledged that “high oil prices will take a bite out of consumers’ pocketbooks.”