Supply Supply Supply

Supply shortages and margin calls drive latest surge

Ole Hansen

Head of Commodity Strategy

Summary:  The decision by West to sanction Russia has generated a great deal of self-sanctioning across markets, and with that we are seeing an increased dislocation between the price of “offline” Russian produced raw materials compared with those sourced from other producers. These developments have taken us to the next and increasingly dangerous phase where sanctions on the world’s single-largest commodity producer may threaten financial stability.

Update: Since publishing this update, the London Metal Exchange in an unprecedented move has decided to cancel all nickel trades carried out today. One entity has control of between 50% and 80% of LME nickel inventories, LME data shows, and the battle between a very big long and multiple large short positions has been brutal. Link to Reuters article here

The turmoil across markets continues following Russia’s unprovoked invasion of Ukraine, not least across the commodity sector where tougher US and European sanctions leading to a great deal of self-sanctioning has increasingly cut off supplies from Russia, thereby impacting several key commodities from gas and oil to several industrial metals and key crops such as wheat. Ukraine, often called the breadbasket of Europe given its extensive fertile lands, which are naturally suited to grain production, has seen is supply chains break down with closed harbors preventing exports of key food commodities such as wheat, barley and corn.

With a great deal of self-sanctioning unfolding we are increasingly seeing Russian produced raw materials being treated as toxic, and not to be touched. The latest example of this was today’s announcement from Shell, that they would stop all spot purchases of Russian crude oil. The decision comes as a response to the uproar that followed the company’s decision last Friday to buy a deeply discounted cargo of Russian crude oil.

As a result of these developments the price gains across individual commodities have become very extreme as per the below table.

The decision by West to sanction Russia has generated a great deal of self-sanctioning in markets such as gas and oil that was not covered by the announced sanctions, and with that we are seeing an increased dislocation between the price of “offline” Russian produced raw materials compared with those sourced from other producers. These developments have taken us to the next and increasingly dangerous phase where sanctions on the world’s single-largest commodity producer may threaten financial stability.

As Zoltan Pozsar in a recent update from Credit Suisse puts it “The aggressor in the geopolitical arena is being punished by sanctions, and sanctions-driven commodity price moves threaten financial stability in the West. Is there enough collateral for margin? Is there enough credit for margin? What happens to commodities futures exchanges if players fail?”.

This is the phase we have now entered and whether you are long Russian or non-Russian commodities, any short futures position held against these will require the ability to post margin to cover your exposure. Commodities tend to trade relatively calm with price swings being determined by the supply and demand outlook as well as speculative interest across individual commodities.

Moves like those we have witness during the past few weeks have upended the markets and suddenly producers who have been hedging, ie selling futures to cover future production of metals, energy and agriculture commodities, have increasingly been caught out with futures exchanges demanding more and more collateral to prevent their short positions from being stopped out.

Slide from our latest daily podcast which can be found by searching for Saxo Market Call

Source: Saxo Group

It is most likely these mechanics that in recent days have seen gas prices in Europe at one point hitting a price of $630 per barrel of crude oil equivalent, nickel seeing a four-fold increased to $101,000 per tons before trading was suspended on the London Metal Exchange and five days in a row with limit up conditions in CBOT wheat.

In other words, these dramatic movements are unlikely to be driven by speculators but instead market insiders who have tried to managed their revenues through the use of futures to offset price movements and lock in gains on future production. Other’s as in the case with nickel may have bought nickel from a Russian company and subsequently hedge the price risk via futures. Not only are they now stuck with an extraordinary margin call but may also not receive the physical metal that triggered the selling in the first place.

All in all a situation, as Zoltan mentioned, that could threaten financial stability in the West. We are already seeing headlines about major losses due to margin calls at otherwise very profitable companies, and it is a situation that until resolved will continue to keep across market volatility very elevated.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank (Schweiz) AG
Beethovenstrasse 33

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.