Oil Prices Could Determine How Markets React to Russia’s Ukraine Invasion

The new round of sanctions on Russia by the U.S. and its allies are likely to push Oil Prices, and inflation is even higher. This creates a more significant challenge for the Federal Reserve as it considers interest rate hikes and adds to tighter financial conditions in general. Economists see energy as a significant driver of inflation, but if Oil Prices get high enough, they also can choke the economy.

Stocks were volatile Monday. The S&P 500 ended the day at 4,373.94, off just 0.2%, while the Nasdaq Composite edged up 0.4% to 13,751.40. Investors turned to the Treasury market, pushing the 10-year yield to 1.8%. The dollar was off the highs it reached overnight trading, and gold was up about 1% as investors sought safer assets.

Oil Prices jumped, with West Texas Intermediate crude futures settling 4.5% higher at $95.72 per barrel, while Brent international gained 2.7% to $100.55.Russian assets sold off, and the ruble was down more than 20%. Even though the U.S. did not directly sanction Russian energy, strategists believe the measures will reduce the amount of that nation’s oil that flows onto the market.

Moscow is one of the world’s largest energy producers, exporting about 5 million barrels a day. It is also a significant exporter of natural gas, accounting for more than a third of Europe’s supply. The U.S. Treasury announced a historic move against Russia’s central bank Monday, sanctioning a G-20 central bank for the first time.