Oil prices plunged below $100 a barrel as China, the world’s largest oil importer, imposed new restrictions to combat the Covid-19 outbreak, moves that could threaten demand.
Fluctuations in oil prices, which were approaching $130 a barrel earlier this month, were reflected in the stock market, with airline shares rising and oil producers falling.
Brent crude, the global benchmark, fell about 8 percent to about $98.87 a barrel, the lowest price since late February. West Texas Intermediate crude, the US benchmark, fell more than 8 percent to $94.43 a barrel. Over the past week, oil prices have fallen by more than 20 percent, reversing much of the surge that occurred after Russia’s invasion of Ukraine. Tens of millions of people in provinces and cities, including Beijing, Shanghai and Shenzhen, are in lockdown due to the outbreak of the micron variant of the coronavirus.
Travel between cities has been halted, production lines have been halted, and shopping malls have been closed. These measures could disrupt global supply chains, which are still struggling to recover from disruptions due to the pandemic, by slowing down key manufacturing and transport networks. Companies in China, including Foxconn, a Taiwanese electronics company that assembles iPhones for Apple, have suspended operations in the country.
The new measures hit the Hang Seng index in Hong Kong, where many Chinese companies are listed. After falling 5.7% on Tuesday, the index is down 10% this week alone to hit its lowest level since February 2016.
On Tuesday, Wall Street reacted in the opposite way, with falling energy prices pushing up stock prices. The S&P 500 rose more than 1.5%, driven mostly by airlines. Shares of American Airlines and United were up more than 8% on Tuesday, while shares of JetBlue were up more than 7% in early trading.
Oil producers have fallen. Shares of Chevron and Exxon Mobil fell more than 6%, while shares of Valero Energy fell more than 7%, making them among the worst in the S&P 500.
Gas prices, which have risen steadily for weeks amid the conflict in Ukraine, also eased slightly on Tuesday. The average price of a gallon of regular gasoline was $4.316, up from a high of $4.325 a day earlier, according to AAA data.
Wall Street has been hit hard this year as threats to the global economy have continued to mount. Inflation is rising at its fastest pace in 40 years, threatening consumer sentiment, and the sudden rise in oil prices in recent weeks has exacerbated the situation. Tuesday’s rally came after a three-day S&P 500 losing streak that saw the index drop more than 12 percent for the year.
The Federal Reserve began a two-day meeting on Tuesday and is expected to announce on Wednesday that it will raise interest rates by a quarter of a point as it begins a campaign to cool the economy.
Russian-Ukrainian War and the World Economy
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Lack of basic metals. The price of palladium, used in car exhaust systems and mobile phones, is skyrocketing amid fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. Nickel prices, another key Russian export, are also on the rise.
financial turmoil. Global banks are bracing for the fallout from sanctions designed to restrict Russia’s access to foreign capital and limit its ability to process payments in dollars, euros and other currencies critical to trade. Banks are also ready for retaliatory cyberattacks from Russia.
Investors also weighed in on mixed reports of conflict between Ukraine and Russia as the fourth round of talks between officials in those countries resumed on Tuesday. Representative of Ukraine Mikhail Podolyak said that Russia and Ukraine discussed possible ceasefire and the withdrawal of troops from the territory of Ukraine.
“Investors take into account so much information,” said Fiona Cincotta, senior financial markets analyst at Forex.com. Ms. Sincotta said investors may be weighing domestic concerns against news from abroad and see the United States as a safer place to invest right now.
“With the spread of Covid in Asia and geopolitical tensions in Europe, the Americas seem to be the best of the bad bands right now,” she said.