Commodity Chaos

Russia’s invasion of Ukraine sparked abrupt & aggressive commodity price shocks across global markets: the Brent international benchmark, which is used to price over three-quarters of the world’s traded oil, hit a high of $139 last week as we have simultaneously seen oil price targets from the largest institutions rise in the last few days.
Bank of America said that if most Russian oil exports are cut off, oil prices could double from $100 to $200, and JPMorgan agreed with a $185 price target if Russian supply hit persists. Due to the fact that dealers have decided that it’s too risky to do business with Russia, 66% of Russian oil is struggling to find buyers — resulting in Russian oil companies drastically slashing prices in some cases.

If we look at history, we could easily say that sanctions on Russia and the exodus of western companies will hugely impact the economic balance and create extreme volatility in prices in the following period. This already happened in the 1970s when US oil prices went up almost 200% in 3 months during the OPEC oil embargo in 1973 and then, in 1979, doubled again because of the Iranian revolution which caused the global supply of crude oil to decline significantly. Traders seem to agree with this affirmation, you just have to look at futures markets.

The automotive nightmare persists: 2021 semiconductor shortages weren’t enough, we now have shortages of palladium, nickel, and copper, which are all critical in the development of electric vehicles.
Palladium, a key material to make catalytic converters for cars. Palladium market will explode in the next 5 years thanks to its useful applications in catalysts, chemical manufacturing, jewellerys and electronics. We must consider that Russia controls 44% of the global palladium supply, while Ukraine has a 70% share in the global production of neon gas, which is used in the production of semiconductors.

As we have analyzed, there is a general turmoil in the commodities market, and we must expect it to persist in the coming weeks. Russia controls 12% of the global crude oil production, 17% of natural gas, other important materials, and it’s responsible for half the global supply of palladium.
Even if additional supply from other countries comes to help, we must acknowledge that as of now, it’s more of a geopolitical crisis than a supply and demand problem.