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(Kitco News) – In a highly volatile session following Russia’s attack on Ukraine, the commodities sector surged, with oil, aluminum, palladium, nickel and the agricultural market registering high earnings.
Brent crude soared above $105 a barrel for the first time since August 2014. West Texas Intermediate was at $97.05 a barrel, having touched $100.54 earlier in the session – the highest high level since July 2014.
Given the supply problems and the fact that Russia is the third largest oil producer and the second largest oil exporter, analysts are not surprised by a rise in oil prices in response to a military conflict.
“Brent crude oil is now trading well above $100 a barrel, and we believe Russian supply concerns will keep prices around that level for the next several months. worsen and Russia’s oil exports were completely snuffed out, we could see oil prices trading in the range of $120 to $140 a barrel,” the commodity economists at Capital Economics said.
On Thursday, Russia attacked Ukraine by land, air and sea in what is one of Europe’s worst security crises since World War II. Several Ukrainian cities were attacked with missiles, artillery and air assaults as Russian troops entered Ukraine from Russia, Belarus and the Black and Azov Seas.
“Russia accounts for around 10% of global crude oil exports, around 50% of European coal imports and around 30% of European natural gas imports,” Capital Economics said. “The latest twist in the Russian-Ukrainian crisis is likely to keep commodity prices high over the coming weeks and months. And if the situation escalates into a deeper and broader conflict between Russia and the West, commodity prices could rise further from here.”
Supply disruptions are the primary concern in this situation, JPMorgan said. “With already extremely low base metal inventories, there is very little additional cushion for further supply disruptions – either directly from Russia or via higher gas and electricity prices. for longer,” JPMorgan said in a note to clients.
Other commodities also rose in the news: natural gas prices in Europe jumped more than 40%. Aluminum hit a record high of $3,450 a tonne, up more than 3%. Nickel hit its highest level in more than a decade to trade at around $25,000 a ton. And crops have rebounded, with wheat hitting nine-year highs due to supply issues.
Palladium jumped more than 6% on the day and platinum 2%. Russia’s Nornickel is the world’s largest palladium producer, with 2.6 million troy ounces of palladium production last year (40% of global mining output).
“Any disruption in palladium supply is likely to have a massive impact on prices, with the market relying on demand destruction to find balance,” TD Securities strategists said. “A significant disruption in palladium supply could impact automotive production, which has been a sore spot fueling inflation concerns.”
Russian President Vladimir Putin gave a forceful speech on Thursday, calling on Ukrainian troops to surrender and warning NATO not to get involved.
“Anyone who tries to interfere with us, or even more so, to create threats for our country and our people, must know that Russia’s response will be immediate and will lead you to consequences that you have never experienced before in your history,” Putin said. “We are ready for any turn of events.”
US President Joe Biden will have no choice but to step up sanctions against Russia, said Win Thin, head of global currency strategy at BBH.
“He has already promised that ‘tough sanctions’ will be announced soon. Yesterday new sanctions were announced for Swiss gas pipeline builder Nord Stream 2 and its corporate management. Now it looks like the much tougher sanctions that were imposed as a reserve will now apply to more Russian entities,” Thin said. “The bottom line is that markets must be prepared for a prolonged period of high volatility, high commodity prices and growing risks of global stagflation…Anyone who lived through the 1970s will remember the tough times caused by not one but two oil shocks.”
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