Status: 02/22/2022 1:52 p.m
The escalation in Ukraine has sent the feared shock waves through the commodity markets. The oil and gas markets are particularly affected.
The escalation of the Ukraine conflict since last morning can also be clearly seen on the oil market. The price for the North Sea variety Brent climbed almost continuously to as much as $99.38 per barrel (159 liters). That was the highest level since September 2014. The US grade WTI rose by more than three dollars today to as much as $96 a barrel after the US market closed yesterday for a holiday.
The oil price is only a few cents away from the psychologically important mark of 100 dollars, which was last reached seven and a half years ago. “The potential for a rally above $100 a barrel has received a huge boost,” said Tamas Varga of oil brokerage PVM.
Gas prices reacted even more strongly to the escalation. European gas prices jumped 13 percent in the morning.
It will be even more expensive for consumers
In view of the foreseeable continuing tensions with Russia, consumers must therefore be prepared for further increases in the cost of petrol, heating oil and gas. Russia is the world’s largest gas exporter and the second largest oil exporter, and Germany’s largest energy supplier.
“The EU’s high dependency on Russian oil and gas speaks against sanctions in this area,” said commodities expert Carsten Fritsch from Commerzbank. “However, Russia could reduce delivery volumes in retaliation against the expected sanctions.”
Gas previously used as a pressure medium
Concerns that the country could turn off the gas tap have again been countered by Russian President Vladimir Putin. He told the TASS news agency that Russia would continue to meet its delivery obligations.
However, the market is speculating about how long this commitment will apply once the EU’s tough trade sanctions come into force. However, the sanctions will exacerbate the country’s foreign exchange shortage, making permanent delivery stops unlikely.
Even if Russia insists that it has always kept its gas supply contracts, according to EU Commission President Ursula von der Leyen, these commitments have only been fulfilled to a limited extent. The reluctance of further quantities despite record-high prices had recently led to a critical emptying of German gas storage facilities. For several weeks now, the EU has been accusing Russia of not behaving in accordance with the market and of using gas supplies as a means of exerting pressure.
“Europe prepared for delivery stop”
Von der Leyen said at the weekend that Europe was now fully prepared in the event of a stop in Russian gas supplies. In particular, talks were held with the exporters USA, Qatar and Egypt. However, today’s approval freeze for the controversial Nord Stream 2 pipeline is likely to make Europe’s long-term supply of Russian gas even more difficult.
The Secretary General of the gas cartel GECF, which has been meeting in Doha since today and which includes Russia but not the USA, pointed to the importance of cooperation between its members in order to meet the growing world demand for the raw material. Since the association’s first meeting in 2011, demand for natural gas has risen by around 23 percent, said General Secretary Mohamed Hamel.
Structural problems in the oil market
On the oil market, too, rising demand has been met with tight supply for months. The past few weeks have shown that the international oil cartel OPEC+ was unable to implement the planned monthly production increases and brought less oil onto the market than agreed. Even the strategic oil reserves of the USA, with the help of which the Biden government was able to curb oil prices in November, can hardly ease the situation. They recently fell to their lowest level in almost 20 years.
However, one factor could ease the strained market: If the US and Iran succeed in a new nuclear deal in the near future, supply could increase significantly, as Iran could throw over an additional million barrels a day onto the market.
Other commodity prices also rose today due to concerns about supply disruptions from Russia. Aluminum prices, measured in London, jumped to a 13-year high, while nickel prices climbed to their highest levels since August 2011.
Will the bread also become more expensive?
The escalation is also having a significant impact on the wheat market. Russia is one of the largest wheat exporters with a world market share of 17.7 percent in 2020. Ukraine achieved a world market share of 8.0 percent in the same year. Even if the market will not be directly affected by sanctions, the supply situation is likely to deteriorate in the coming weeks.
As a result, consumers tend to have to adjust to further increases in bread prices. However, the grain prices only play a subordinate role in the end price of the baked goods given the significantly higher personnel and production costs. They are estimated to be in the low single digits.