Oil prices extended their gains on Thursday because of fears of further Russia sanctions that could hit already thin supplies, while most equity markets fell due to surging inflation and central bank plans to hike interest rates.
The recent rally across the equities seems to have run its course for now, as investors nervously track developments in the Ukraine war with efforts to reach a diplomatic solution crawling along.
All eyes are on the meeting of NATO this week, where Joe Biden and other leaders are expected to discuss further punishing Moscow for the month-long invasion, while the European Union is still debating a possible embargo on Russian oil.
Supply worries were added to by a warning from Russia that repairs at a terminal near a Black Sea port could take up to two months, causing a drop in exports of about one million barrels per day.
Both main contracts gained more than five percent Wednesday - with Brent back above $120 - and they continued to advance in early Asian business.
There was little support from speculation about progress in the Iran nuclear deal, which could lead to the release of Tehran's crude back onto world markets.
Pressure on central banks to tighten monetary policy before prices run out of control will be boosted by the surge in oil markets, which is currently at a 40 year high in the United States and a 30 year high in Britain.
In light of that, the Federal ReserveFederal Reserve has become more hawkish.
After last week announcing a quarte point lift, bank boss Jerome Powell suggested on Monday that officials could lift interest rates as much as half a point on more than one occasion if price gains don't slow, even at the expense of the economic recovery.
The prospect of tighter financial constraints down the line is weighing on stocks.
As traders digest higher Treasury yields and higher inflation signals via the oil price channel, stocks are less, said Stephen Innes, head of SPI Asset Management.
We may see volatility increase due to multiple 50 basis point hikes and even emergency rate hikes in the near term. Pressure points are building again with oil on the boil, resulting in a stagflation that weighs on sentiment. Teresa Kong of Matthews Asia said the steeper, quicker tightening moves were necessary.
She told Bloomberg Television that the Fed needs to increase its ammunition. Global growth is going to be dwindled and they need to be able to cut rates later on, should this have a greater than expected recession effect. Brent crude in the North Sea was up 1.2 percent at $123.00 per barrel.
West Texas Intermediate: UP 0.8 percent at $115.81 per barrel.
The euro dollar was DOWN at $1.0984 from $1.1013 late Wednesday.
The euro pound is DOWN at 83.27 pence from 83.36 pence.
New York -- DOW: DOWN 1.3 percent at 34,358.