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This week will mark a full year since Russia invaded Ukraine. The conflict has resulted in the deaths of tens of thousands of people, displaced millions of Ukrainians, crippled economies, destroyed infrastructure and upended food and oil markets globally. But a relative calm has settled over some markets even as the war endures.
Oil is trading lower than a year ago — and Russia’s planned March cut to supply hasn’t disrupted its recent stagnancy. Whereas the market faced extreme swings after the invasion, when daily moves of $5 a barrel or more were common, improved liquidity today has contributed to more modest fluctuations. Both global benchmark Brent and West Texas Intermediate futures have been trading in narrow bands, with neither finding the momentum to break above their 100-day moving averages for any sustained duration in months. But with OPEC forecasting a tighter global market this year than previously expected, more volatile days may still lie ahead.
Europe finds itself well-supplied with natural gas — despite cuts in Russia’s exports — after buyers on the continent last year raced to find alternatives and hoarded it at record prices. That was in preparation for a grim winter that hasn’t materialized. Milder weather and efforts to conserve gas have indeed contributed to relatively limited heating demand. Coupled with ample shipments of liquefied natural gas, inventories of the vital fuel are near historic highs, which has sent prices lower. Europe’s benchmark gas futures have plunged from their August peak, dropping below €50 a megawatt-hour for the first time in 17 months. Even so, analysts question whether the decline in prices can last. Lower costs may spur gas consumption in power generation or by industries, threatening to disrupt a fragile balance. Higher LNG demand from Asia is also a risk, as well as a potentially colder 2023-2024 winter season.
On the Farm
The Russia-Ukraine conflict continues to shake grain and other crop markets globally. As such, traders will be focused on the US Department of Agriculture’s annual outlook forum, which starts Thursday. The USDA is expected to unveil fresh forecasts for the 2023-24 growing season, including for acreage. A Bloomberg survey shows analysts expect farmers to plant more corn, soybeans and wheat this year from a year ago. Even so, the agency earlier this month forecast that overall farm income would fall by 16% in 2023 after two consecutive years of record profits as inflation for many foods has moderated. Wheat futures in Chicago in particular have retreated after a turbulent year, despite lingering concerns that Russia will intensify its war.
Global freight rates are under pressure from slower demand as inflation rises. Trade volumes of some of the world’s most important metals like iron ore and steel have dwindled, while consumers are spending less on food and plastic goods. That’s affected demand for shipping, pushing down container and bulk freight indexes to 2 1/2-year lows. Still, it’s unclear whether China’s re-opening will spur demand for jet fuel in Asia. Tanker rates for transporting distillates around the globe are rebounding this month, outperforming other shipping asset classes.
Gold, the safe-haven of choice in the early days following Russia’s invasion, is losing some luster. A three-month winning streak is set to end, with the US Federal Reserve poised to continue raising interest rates to help curb inflation. Rallying global bond yields should keep a lid on significant bullion gains as higher rates and a stronger dollar make gold less attractive. The precious metal has fallen below its 50-day moving average this month in a bearish slide from its 2023 high and is on the verge of giving up its year-to-date advance.
For more commodities prices, run GLCO.
For this week’s weekly agendas by sector:
Click here for oil and gas markets
Click here for agricultural markets
Click here for metals markets
–With assistance from Dominic Carey, Michael Hirtzer, Elena Mazneva, Ann Koh and Catherine Traywick.
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