Commodity prices spike on supply fears

Russia and Ukraine are both major wheat exporters

(Image credit: © Alexander Reka\TASS via Getty Images)

published 4 March 2022

“The global oil market is suffering what’s starting to look like the biggest disruption since the 1990-1991 Gulf War,” says Javier Blas on Bloomberg. Brent crude oil prices hit $110 a barrel early this week, their highest level since 2014, and other signs of strain are appearing. Russian oil usually trades at a few dollars discount to the Brent benchmark, but that has since widened to more than $18. Oil refineries are thought to be “self-sanctioning” – refusing to deal in Russian oil for fear of legal complications even if they are technically allowed to do so. That could see as much as two million barrels per day of Russian oil drop off world markets, worsening the existing shortage.

Meanwhile, Russian gas continues to flow to Europe through Ukrainian pipelines, says Adrien Pécout in Le Monde. At the outbreak of hostilities “the market anticipated that everything would suddenly cut off, then it calmed down, because the fundamentals of supply and demand are still there”, says Nicolas Leclerc of broker Omnegy. However, prices remain “very volatile”. European wholesale gas prices spiked towards €135 per megawatt hour last week but have since fallen to around €117, still short of December’s €188 record high.

Russia is also a “big supplier of aluminium and nickel, and produces about 40% of the world’s palladium”, says Jon Yeomans in The Sunday Times. That explains why aluminium hit a record high of $3,525 a tonne this week. Some other disruptions are more surprising: Ukraine, is a major supplier of “neon gas, used in microchips”. Russia is the world’s biggest wheat exporter, with Ukraine in fourth place. Wheat prices traded in Chicago are up 30% this year. Higher food prices are “certain to make day-to-day life harder for ordinary people across the world”.