Stocks have been hammered in recent months by a triple dose of uncertainty stemming from shifting monetary policy, inflation, and the steady run-up to Russia’s unprovoked invasion of its neighbor. Volatility intensified the past two weeks as Western nations and businesses have cut off Russia’s economy, driving up oil prices.
Analysts expect oil prices to remain elevated or climb higher as long as the conflict in Ukraine continues. The United States, Britain and European Union have moved to limit purchases of Russian oil in recent days, raising the prospect of retaliation. The Kremlin has warned that global oil prices could hit $300 per barrel if Western nations ban Russian energy exports.
But investors appear reassured by recent comments from Ukrainian leaders, three analysts told The Washington Post. Ukrainian President Volodymyr Zelensky told ABC News Monday he had “cooled” on the prospect of NATO membership, and one of his aides told Bloomberg Television Ukraine is open to discussing Russia’s demand of neutrality.
“Any signs of a diplomatic off-ramp — for example, Zelensky expressing openness to a future for Ukraine without NATO membership — have the effect of cooling off oil prices,” said Raymond James energy industry analyst Pavel Molchanov.
In this case, the idea that Ukraine is no longer demanding NATO membership appears to have sparked a short-term speculative rally, and computer-driven trading may have exacerbated the stock-price surge.
The steep decline in oil prices comes as stock prices have taken a beating, with major indexes already in correction territory before the Ukraine conflict began. With all three indexes down more than 8 percent year to date, investors are looking for buying opportunities.
“Selling in recent weeks has been relentless, and today feels like a beach ball has popped back up after being held underwater,” said Michael Farr of the D.C.-based investment firm Farr, Miller & Washington.
Markets surged in Europe, where energy markets are closely linked to Russia. Overseas, Germany’s DAX index jumped 7.9 percent, while France’s CAC 40 was up 7.1 percent. The Pan-European Stoxx rose 4.7 percent. Britain’s FTSE100 rose 3.2 percent. Asian indexes were mostly negative, with the Hang Seng off 0.7 percent and the Nikkei down 0.3 percent.
Gold, a Russian export and traditionally a “safe haven” asset, fell 2.7 after a broader weeks-long climb, to settle at $1,988.80 per troy ounce.
Energy stocks, bolstered in recent weeks by rising gas prices, trailed off on Wednesday. Chevron was down 2.8 percent by midafternoon, Shell was down 2 percent, and BP declined 2.5 percent.
Analysts cautioned that the market’s wild swings are likely to continue, with multiple sources of uncertainty related to inflation, rising interest rates, and rising energy prices still exerting pressure on the markets.
“Investors should expect continued volatility given the uncertainties related to both geo-political events as well as factors such as inflation and rising rates that could impair future growth prospects,” said Wayne Wicker, chief investment officer at MissionSquare Retirement.