Oil and wheat pops on Putin comments
Head of Commodity Strategy
Summary: Crude oil hit the lowest since January in early trading on Wednesday before Putin comments helped support a small turnaround, not only in crude oil but also wheat. The latter after he called for a review of the UN-brokered deal that allows Ukraine under supervision to export its grain via the Black Sea. A threat to halt supplies of oil and other raw materials should a price cap be introduced supported a temporary pop in oil before growth and China worries resurfaced to weigh on oil.
Crude oil hit the lowest since January in early trading on Wednesday before Putin, speaking at an economic forum in Vladivostok, helped support a small turnaround, not only in crude oil but also wheat. The latter after he called for a review of the UN-brokered deal that allows Ukraine under supervision to export its grain via the Black Sea. Clearly trying to present Europe as the villain and remove focus from Russia’s role in the current food crisis, partly caused by the war in Ukraine and partly due to drought and adverse weather conditions elsewhere, he accused Turkey and the European Union of receiving the bulk of the exported grains at the expense of poorer countries.
His comments saw the Chicago and Paris wheat futures contracts jump by more than three percent on concerns the deal could be altered or in a worst case scenario cancelled, thereby removing a critical source of high protein wheat supply into an already tight market. The December Chicago wheat contract which has been trading sideways since July briefly breached resistance around $8.50 per bushel while over in Paris, the December Milling wheat contract jumped towards a key area of resistance starting around €332/tons.
Crude oil meanwhile popped higher after Putin said a price cap on Russian oil and gas would lead to a complete halt of supplies to those involved. "We will not supply gas, oil, coal, heating oil - we will not supply anything," Putin said. His comment helped arrest a slide that earlier had taken Brent and WTI to their lowest levels since January. Driven by continued demand worries related to the risk of growth-killing rate hikes from central banks battling runaway inflation and China’s continued economic struggle caused by its Covid-zero policy.
Some 46 cities in China have by now implemented various degrees of lockdowns or restrictions on mobility, affecting nearly 300 million people and close to 25% of the country’s GDP. In addition, a surging dollar and weaker equity markets continue to negatively impact the general level of risk appetite. Instead of supporting prices, the token 100k b/d OPEC+ production cut announced on Monday has had the opposite effect with the market concluding the group worries about demand going forward.
A price cap would undoubtedly lead to more upheavals of the global energy market, not least considering Russia, despite sanctions, has managed to maintain its position as the world’s second biggest supplier after Saudi Arabia. Again the focus will be squarely on Europe which prior to the Ukraine war bought around 40% of its gas and 30% of its oil and fuel products from Russia.
In the short-term, Russia’s threat to G7 and Europe in particular is unlikely to halt the current negative oil market sentiment. However, having unsuccessfully tried to support prices by their token production cut, the market is wary about renewed verbal intervention from key OPEC producers, who can meet at short notice if required by the prevailing market conditions.
In Brent, the market is focusing on support around $90 per barrel, as a break may signal further weakness towards $86.70 followed by $77.60.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.