Above the Fold

Remember the Last Time Crude Hit an All-Time High?

As we discussed in last Tuesday’s edition of Basis Points, it was likely that crude oil prices would be going much higher than the $100 level achieved on March 1, a level not seen since the summer of 2014. Ironically, less than two years ago, oil prices went negative, meaning that some get paid to take delivery of a barrel of black gold.

After hitting a high of $130.50, West Texas Intermediate oil (WTI) prices have since backed off to $118.24, while Brent Crude, the benchmark for African, European and Middle Eastern oil, has settled around the $123 level, after surging to nearly $140. Natural gas prices, which tend to mirror crude, already achieved all-time highs Monday, while Brent Crude reached its all-time high of $147.50 back in July 2008. Some analysts believe the massive geopolitical impact of the Ukraine crisis could drive prices even higher than that. 

The catalyst for the jolt in oil and commodity prices was intensifying attacks from Russia across several areas of Ukraine just ahead of cease-fire talks. The continued aggression toward both military and civilian targets is drawing increased global ire and a growing call for energy sanctions on Russia. But as we stated previously, full-on sanctions would send a myriad of commodities soaring ever higher, threatening global stagflation or worse. The allies certainly have some decisions to make as Putin permanently shifts the world order. High prices can often be the cure for high prices (consumers buy less, competitors create alternatives), although the outcome isn’t always positive. Just five months after WTI oil last hit its record of $145 in 2008, prices collapsed to $31 as the Great Recession deepened — obviously, another deep recession wouldn’t be the preferred outcome here. 

Three Things 

1. What’s Apple Going to Release Today? – At 1 p.m. ET today, Apple is expected to drop a few new gadgets during its first livestream of 2022, called “Peek Performance.” Insiders are forecasting a new, lower price iPhone SE with 5G capability, along with upgrades to the iPad Air, Mac Mini and a redesigned MacBook Air equipped with a new M2 processor. Look for some services and content upgrades for Apple TV Plus, as well as the potential for a VR/AR (virtual/augmented reality) product (at least a “peek” at what it might look like). 
2. Investors Diving Into U.S. Treasuries – Yields on 10-year Treasury notes experienced their biggest weekly decline in two years as investors sought shelter in safer assets and reassessed just how long and far the Federal Reserve will be able to raise interest rates. Yields dipped down to 1.7% as bond prices rose. The buying was also spurred by data showing a less-than-expected increase in workers’ average hourly wages and worsening inflation that could seriously undermine long-term economic health. 
3. Could China Fill a Vacuum in Russia? – Aside from China purchasing energy directly from Russia, the Wall Street Journal is reporting that Chinese tech giants could fill the void left by existing western companies. After sanctions and corporate departures from U.S. and NATO allies, China could step in and provide telecom, computing and digital solutions to Russian consumers. China already has a 40% market share in the region, but logistical challenges, the inability to process payments, and even the threat of violating imposed sanctions from foreign governments all pose serious hurdles to expansion. 

Did You Know? 

A Russia Revolution Began Today

On this date in 1917, the February Revolution (known as such because Russia utilized the Julian calendar) began as food shortages sparked riots across Petrograd (now modern St. Petersburg). A week after the riots and strikes began, Czar Nicholas II was forced to abdicate his throne. The corrupt, failing government was temporarily replaced, but it gave way to the rise of the Bolshevik Party, led by Vladimir Lenin, who would take power later that year to form the world’s first communist state.