Commodity markets hit record high amid supply disruptions

Commodities hit record highs, with the ANZ China Commodity Index recording its biggest weekly gain as the Ukraine conflict disrupts supplies in key markets.

Crude oil extended gains on Friday, with Brent crude finishing the week up more than 20% amid supply disruptions emanating from the Ukraine conflict. Fears of further stoppages to supplies rose after reports that the US was weighing up a ban on imports of Russian crude oil. Bloomberg reported that conversations are taking place within the Biden administration on the impact such an action would have on American consumers and the wider global marketplace. The US is also said to be in talks with European countries on a joint approach to ban Russian oil imports that could still ensure adequate supplies. The International Energy Agency has already announced it will coordinate the release 60mbbl of oil from strategic inventories. However, on Friday it said that it was ready to recommend additional steps if required. The prospect of an Iran nuclear deal is failing to offset concerns of supply shortages. International Atomic Energy Agency chief, Rafael Mariano Grossi, said his trip to Tehran could lead the way to reviving the Iran nuclear deal. Iran has already agreed to help end a contentious nuclear investigation, paving the way for sanction relief, according to Bloomberg. This could see the return of country’s oil output to the international market.

European natural gas surged to fresh record highs as the conflict in Ukraine sparks fears of supply disruptions. Dutch front month futures gained more than 25% on Friday to close at EUR204.15/MWh. The market is now pricing in the high likelihood pipeline gas going through Ukraine will be disrupted. For the moment, gas continues to flow into the continent, with Gazprom reporting it is meeting client requests. An imminent cold snap across Europe, coupled with low wind power generation, also raised concerns of further shortages amid the expected strong demand for gas-fired power. North Asian LNG futures remained extremely volatile as the impact of the conflict spread across the global energy market. JKM futures for April surged to USD59.67/MMBtu before pulling back in late trading on Friday. The rally has seen several Asian importers pull back from seeking spot LNG cargo.

The selloff in European carbon markets continued, with EUAs ending the week down 26%. The selling has been sparked by liquidation from investors, who have fled the market amid the Russia-Ukraine conflict. EUAs are likely to continue to face bearish pressures as the prospects of industry slowdowns outweigh any increased coal and oil use to cover Russian gas supply disruptions.

Base metals surged to record highs as fears of further supply shortages have created a short squeeze in an already tight market. Nickel led the sector higher, trading above USD30,000/t for the first time since 2008. Traders who had short positions leading into this conflict have been forced to cover those positions as fears of disruptions to Russia nickel rises. This comes amid a tight market that has pushed stockpiles in LME warehouses to their lowest levels since November 2019. Aluminium hit a fresh record high of USD3,867/t. The metals are also being supported by high energy prices. Strong demand for safe haven assets helped lift gold prices. Sentiment was supported by a slower than expected rise in US payrolls on Friday.

The prospect of the global steel supply chain being impacted has helped push iron ore futures higher. Russian steel companies have already said they are struggling to sell their products. This could see demand for Chinese steel rise.