Crude oil reached a 14-year high on Thursday after Brent almost touched $120/b before suffering a ten-dollar correction on speculation that a nuclear deal with Iran could be reached this weekend. Global oil majors including BP Plc, Shell Plc and Exxon Mobil Corp. are exiting Russia while buyers are shunning the nation’s crude as they navigate financial penalties and soaring shipping costs. As a result, the global market is currently in a flux with Russian unwanted crude varieties trading at a deep discount to Brent.
Following a record short meeting on Wednesday, OPEC+ decided to rubberstamp another unobtainable 400k b/d production increase for April. As it turned out, this meeting was more about keeping OPEC+ stable than the oil market with the elephant in the room of the Ukraine war and Russian sanctions not being addressed. It highlights the tightrope the group has to walk, perhaps also considering the fact the toolbox, i.e. spare capacity, is running close to empty. In the short-term, with no solution in sight, the price may need to rally to levels that kill demand. A peace deal on the other hand may remove a large chunk of the gains seen during the past ten days.
European gas briefly surged to €200/MWh and at current prices more than ten times above the long-term average we have reached levels that will see demand from heavy energy consuming industries begin to fall, the result being weaker growth on top of surging inflation. The biggest casualty of these developments was the ICE carbon futures contract which has slumped by one-third from the February peak. While signs of reduced demand for carbon offset was the trigger, the speed and depth of selling was driven by speculators exciting what up until recently had been considered a safe bet with prices only going up as EU politicians stepped up their battle against climate change.
Coal prices have more than doubled since the start of the year with Europe, Japan and Korea seeking alternative suppliers to Russian coal and power producers seeking substitutes to for Russian gas. In addition, coal production has faced challenges elsewhere with labor shortages in China and Mongolia, flooding across Australian mining regions, while a January export ban from Indonesia has been adding to the current tightness.
Wheat prices spiked to a fresh 14-year high in Chicago while the Paris high-protein milling wheat contract has been setting daily records culminating on Friday when it jumped to €385/tons, some 30% above the previous record from 2008. Ukraine and Russia export 29% of the world’s wheat, mostly via the Black Sea, a route that is now offline following attacks on cargo ships near Odessa. From a global food security perspective, this is a very serious development as wheat together with rice are two of the most important food staples. Among the world’s top ten importers of wheat we find several developing nations from Egypt and Turkey to Indonesia and Algeria, all countries where surging food costs will have an outsized negative impact.