Global Markets' Turmoil To Continue, Early Indications Point To Risk Aversion

Financial markets brace for more turmoil this week as the Russia-Ukraine conflict shows little signs of easing. At the same time, European Union nations consider joining the US in a Russian oil embargo sanction.

Early on Monday, Ukraine's deputy prime minister said the surrender of Mariupol was out of the question.

While risk-assets cheered on Friday after Russia made coupon payments due on two of its sovereign bonds in dollars last week and avoided a historic sovereign debt default, investors now wait anxiously to see if Moscow would meet interest payments of $615 million due this week while on April 4, a $2 billion bond is due.

Oil prices jumped on Monday, with the Brent crude futures up over 3 per cent to above $111 a barrel, ahead of talks this week between EU governments and US President Joe Biden for a series of summits that aim to harden the West's response to Moscow over its invasion of Ukraine.

EU governments are considering whether to impose an oil embargo on Russia.

That comes when inflation worldwide is surging, and the US Federal Reserve has signalled a higher rate trajectory after rising by 25 basis points last week.

Economic growth worries have increased as reflected by the flattening of the US Treasury yield curve - a prominent measure of economic expectations - in recent weeks. The spread between two- and 10-year US bond yields has shrunk to its smallest since the pandemic.

The latest market trades showed long positions for oil and commodities were the most crowded, indicating the sour sentiment.

The supply gap worry has investors on the edge as Internation Energy Agency pointed out that 3 million barrels per day of Russian crude and products would be off the market by April. With no other suppliers being able to plug that gap, the risk-off sentiment is likely to persist.

What has not helped is a weekend attack on Saudi oil facilities by Yemen's Iran-aligned Houthi group and reports that some oil-producing countries may struggle to meet their agreed supply quota.

"A Houthi attack on a Saudi energy terminal, warnings of a structural shortfall in production from OPEC, and a potential European Union oil embargo on Russia have seen oil prices jump in Asia," OANDA's senior analyst Jeffrey Halley said in a note.

"Even if the Ukraine war ends tomorrow, the world will face a structural energy deficit, thanks to Russian sanctions."

Over the weekend, attacks by Yemen's Iran-aligned Houthi group caused a temporary drop in output at a Saudi Aramco refinery joint venture in Yanbu, feeding concern in a jittery oil products market, where Russia is a key supplier, and global inventories are at multi-year lows, Reuters reported.

The latest report from the Organization of the Petroleum Exporting Countries and allies, including Russia, called OPEC+, showed that some producers are still falling short of their agreed supply quotas.

OPEC+ missed its production target by more than 1 million barrels per day (bpd) in February, three sources told Reuters, under their pact to boost output by 400,000 bpd each month as they rewind sharp cuts made in 2020.

The two OPEC countries with the capacity to instantly raise output, Saudi Arabia and the United Arab Emirates, have resisted calls from major consuming nations to step up production faster to help drive down oil prices.

Despite solid prices, US energy firms are also struggling to keep the number of active oil rigs up.

The expected shortage would extend beyond oil to other commodities, with French farming minister Julien Denormandie saying the Ukraine war could lead to a food crisis "on the global" scale.