Commodities steady as growth concerns offset supply issues

Prospects of weaker economic growth amid the Ukraine conflict weighed on sentiment across the commodity markets. However, ever increasing constraints on supply limited the falls.

Crude oil prices fell as investors faced the prospect of higher trading costs on major exchanges. Clearing houses have seen increasing margins amid the higher volatility for some time. Overnight, ICE raised its margin requirements for Brent by 19%, following an increase of 32% earlier this month. Trading was also choppy as traders awaited the outcome from the NATO meeting. Loadings from the Caspian Pipeline Consortium sea terminal partially resumed after completely halting on Wednesday when storms damaged its facilities. Initial expectations were that exports could be cut by 1mb/d. Much speculation is building that the US and Europe will sanction Russian energy. In the meantime, IEA members are seeking to reduce their use of its crude. Executive Director of the IEA, Fatih Birol said the group is ready to release more oil from emergency stockpiles if needed. However, Russia oil is still finding a home. Indian refiners have issued several tenders for Urals crude as the discount to Brent continues to rise. China’s independent refiners are also said to be actively purchasing Russia crude oil.

European natural gas fell as the US promised to supply more LNG to the continent. Dutch front month futures dropped 4.6% to EUR111.61/MWh after EC President Ursula von der Leyen said it will receive more supplies from its trans-Atlantic partner. The US is said to be completing a plan to boost exports by 15bcm by the end of this year. Although welcome, the volumes would be well short of what is required to replace Russian gas. There are also question marks over the ability of the US to increase output, as it has limited spare export capacity. In the meantime, concerns of supply disruptions remain. Europe formally rejected President Vladimir Putin’s demands that Russia gas be paid for in roubles. EU leaders Olaf Scholz and Mario Draghi said Moscow should honour payments for energy exports in the currency stated in the contract. North Asian LNG futures pushed higher as Japanese buyers return to the spot market amid energy shortages. Jera Co, the nation’s top power producer, purchased several LNG cargoes to help cover the rise in demand following last week’s earthquake. A host of other utilities are also said to be seeking cargoes through June. This comes as LNG inventories in Japan slipped last week and remain well below the four-year average.

European carbon emissions gained as the prospect of stronger demand for fossil fuels rose. A cool outlook in the north of the bloc is likely to persist into next week. Coal prices have been edging higher in recent weeks amid supply disruptions in Russia and Asia.

Base metals were largely weaker as China lockdowns and the Ukraine conflict raise fears of weaker economic growth. The UN reduced its forecast growth this year to 2.5% and anticipates a deep recession in Russia and significant slowdowns across Europe and Asia. Nickel bucked the trend, with prices rising by the 15% daily limit on the LME. Despite Tsingshan striking a deal with banks to avoid further margin calls, it still has a large short position in the market. Rising prices in recent days raises the risk of another short squeeze hitting the market.

Traders in the iron ore market shrugged of concerns of weaker demand amid COVID-19 restrictions to push prices higher. The city of Tangshan remains under lockdown, which has started to disrupt operations as some steel mills. However, the impact is expected to be fleeting.

Gold gained amid the gloomy economic outlook, while the threat of further sanctions helped boost safe haven buying