With the ongoing tensions in Ukraine and sanctions being placed on Russia, commodities have been the hottest picks in the market. To summarise:
- Wheat up 31% in 3 days
- Oil up 17% in 3 days
- Gold up 3% in 4 days and 9.5% since start of February
- Aluminium up 13% in a week
- Nickel up 16% in a week
- Palladium up 22% in a week
The list could go on. All commodity markets are on track for their biggest weekly gains in years as Ukraine and Russia supplies look set to drop and buyers have been sent chasing replacement suppliers.
Russia is one of the worlds largest exporters of natural gasses and also a major player in oil, aluminium, palladium and wheat. Sanctions being placed on Russia by governments is seeing general supply drop and demand continuing at similar levels. Less supply means more demand, which drives prices higher.
“Russian energy exports are, at present, exempted from global sanctions, but exports are nevertheless disrupted,” analysts at UBS said. “This is the result of self-sanctioning by Russian crude buyers in fear of future sanctions and/or for reputation reasons. With limited Russian storage capacity, these disruptions will likely, with a delay, also trigger production shut ins (cuts).”
So what next?
Prices may not continue to rally at the extent that they have this week. However, we think prices will continue to rise. Unless we hear anything different about Russias plans or any peace talks, the worlds commodity market will be facing challenges of lower supply.
Gold is on track to test all-time highs. We wrote about this at the start of the year amid interest rate concerns and the price has continued as thought. The price is just $40 off our $2,000 target and could continue further.
Oil is now the highest it has been for a decade. All-time highs sit at $150 during the 2008 crisis. Will prices continue a further 35% to reach this figure? It seems like a long shot but the price has climbed 70% in the last four months, so there’s no ruling this move out.
Palladium is also nearing all-time highs of just over $3,000/oz. Wheat is at its highest price as Ukraine is one of the leading suppliers of the crop.
All eyes on these markets as tensions continue.