Talk that Saudi Arabia has its sights on $80-$100 a barrel oil again ignited a fierce rally in commodities and resource stocks on Thursday, though the potential boost to inflation globally put some pressure on fixed-income assets.
It was set to be the strongest day for the commodity complex in eight months as Brent crude futures climbed past $74 a barrel after a near 3 percent jump overnight.
The surge came on a Reuters report that OPEC's new price hawk Saudi Arabia would be happy for crude to rise to $80 or even $100, a sign Riyadh will seek no changes to a supply-cutting deal even though the agreement's original target is now within sight.
“The Saudis and their colleagues in OPEC need higher oil for their fiscal positions and the Kingdom is on a bold – and costly – reform program,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
The leap in oil combined with fears that sanctions on Russia could hit supplies of other commodities to light a fire under the entire sector. Nickel jumped the most in 6-1/2 years on talk Nornickel - the world's second-biggest producer of the metal - could be targeted.
Aluminum prices reached their highest since 2011, its raw material alumina touched an all-time peak, while iron ore leapt 5 percent. Such increases, if sustained, could fuel inflationary pressures and investors hedged by selling sovereign bonds.
Yields on US two-year Treasuries stood at levels last visited in 2008 at 2.43 percent and 10-year German yields went above 0.55 percent for the first time in almost a month.
“If oil prices were to move toward $80 a barrel and euro weakened a bit, there could be some inflation pressure,” said Rabobank's head of macro strategy Elwin de Groot.
“That usually has a negative impact on spending and could do here, especially if it comes on the back of these trade and geopolitical tensions.”
Resource stocks were the big winners, driving Chinese blue chips up 1.1 percent. MSCI's broadest index of Asia-Pacific shares outside Japan added 0.9 percent, with energy up over 2.6 percent.
Japan's Nikkei faded late in the day to end up 0.15 percent, but basic materials and utilities both climbed more than 2 percent.