Oil brushes $116; stocks waver amid tensions

Oil prices were pushed to dizzying heights Thursday as investors maneuvered around Russian 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 hopes that a nuclear deal between the U.S. 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. Shortly before 3:30 p.m., the Dow was down about 0.2 percent, while the broader S&P 500 index was down 0.5 percent. The tech-heavy Nasdaq swung 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 MissonSquare 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 the coronavirus pandemic’s continued threats.

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 0.4 percent to trade about $1,930 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,” Ed Moya, senior market analyst with OANDA, said Thursday in comments emailed to The Post.

Prices for aluminum, nickel and wheat — other exports tied to Russia and Ukraine — also have been pushed 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 who 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 that is likely 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. Auto giants such as Volkswagen and Mercedes-Benz have halted exports to Russia, while the home-furnishing giant Ikea said Thursday that it would close its Russian stores, pause production in the country and stop exporting goods there. Apple, Nike and H&M have halted sales in Russia, and Republican governors in the United States have moved to restrict the sale of Russian vodka in their states.

The value of the ruble plunged to less than 1 U.S. cent this week as Russia felt the full weight of the sanctions. The Bank of Russia 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 “neglible 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 acknlowedged that “high oil prices will take a bite out of consumers’ pocketbooks.”