The Russian Ukraine Conflict Sends Energy Prices Soaring

Yesterday’s news flow from Russia overshadowed all economic events and data releases as traders ran for the hills. Geopolitical tensions usually send traders to the US dollar, gold and the Japanese yen, but when one of the nations involved in the unrest is a major gas and oil producer the energy markets sit up and take notice. Many times conflicts in the Middle East as we witnessed over the last 18 months do affect the energy sector but have very little major effect on the global stress and safe haven trades and if they do it is only for a short period of time. It has been rare in the last to see Moscow involved in a military aggressive situation, yes there are political volleys and diplomatic arguments and threats but not much in actual aggression. This is one of the reasons that the military action by Russia has caught traders off guard.

Crude oil soared on Monday to trade above the 105 price level and is holding this morning just under at 104.72 while Brent oil continues to climb trading at

111.22. Russia controls much of the oil and gas that feeds the European Union thus leaving the EU in a precarious situation. U.S. crude oil closed at a five-month high on Monday, amid escalating tensions in the Ukraine, where Russian forces seem to have taken over the strategically important Crimea region. Some encouraging economic reports also supported oil prices, but the real focus was the geopolitical tensions in Ukraine with Russian crude oil and natural gas a big factor. . Russian President Vladimir Putin insists he has the right to invade his southern neighbor in the interest of Russian citizens living in the Ukraine. Investors were deeply concerned about supply interruptions and sanctions against Russia, one of the world’s largest producers of crude oil and natural gas.

The Ukraine Prime Minister said the Russian actions tantamount to “a declaration of war.” The G7 leaders have also condemned Russia’s intervention, while U.S. Secretary of State John Kerry will travel to Kiev Tuesday to offer help for Ukraine. The stage is set for a return to the Cold War years, with news that the U.S. is readying for some tough sanctions against Russia.

There was much economic news overlooked on Monday including a report from the Institute for Supply Management that showed activity in the U.S. manufacturing sector expanded at a faster than expected in February, notwithstanding the impact of adverse weather conditions. The ISM purchasing managers index climbed to 53.2 in February from 51.3 in January, with a reading above 50 indicating growth. Economists expected the index to edge up to 51.9.

Also construction spending in the U.S. unexpectedly showed a modest increase in January, a report from the Commerce Department revealed Monday. The construction spending edged up 0.1 percent to a seasonally adjusted annual rate of $943.1 billion in January from the revised December estimate of $941.9 billion. Economists expected spending to drop by about 0.5 percent.

Natural gas climbed 23 points this morning to trade at 4.526 after touching above the 4.70 level on Monday as another winter storm blanketed the US. Natural gas was expected to soar above the $5.00 level but traders seemed to pay little attention yesterday. Heating oil also gained 67 points this morning to trade at 308.40 climbing to near a recent high.