EUROPEAN COMMODITIES UPDATE: Brent hits fresh 7-yr peak but price action wanes as sentiment recovers

Analysis details (10:49)

Crude oil prices have surged on geopolitical developments. Russian President Putin recognised the independence of two separatist-held regions of Donetsk and Luhansk (part of Donbas) in eastern Ukraine. Russian President Putin ordered Russian troops to Ukraine after recognising breakaway regions; troops were sent as peacekeepers. The West is preparing a package of sanctions now whilst discussing sanctions in the event of an escalation. Analysts at JPM highlighted potential sanctions against Russian oligarchs, Nord Stream 2, Russian financial institutions, Russian sovereign debt, Russia’s energy sector, the SWIFT payments and RUB convertibility. If energy is hit by sanctions, the Russian Energy Minister said Europe will be unable to replace large volumes of Russian nat gas with other regions' LNG. Russia holds over 30% market share in Europe for both natural gas and oil. To alleviate some of this threat, the US said it is engaging with LNG suppliers to manage storage and diversion to Europe if needed. However, Saudi Arabia, Kuwait and Iraq would struggle to cover the shortfall in crude supply created by a blanket ban on Russian energy exports as they have already allocated their annual term supplies, according to Argus sources. Further, Qatar's Emir has received a letter from Russian President Putin regarding supporting and strengthening bilateral relations, according to the state news agency; US President Biden also recently held a meeting with the Qatari Emir regarding LNG supply. In terms of price action, Brent Apr soared to a high of USD 99.50/bbl (vs low USD 96.50/bbl) – hitting levels last seen mid-Sept 2014, whilst WTI Mar almost tested USD 95/bbl to the upside; note, yesterday saw no settlement amid the US holiday. Elsewhere, spot gold has pulled back under USD 1,900/oz as havens give up some recent gains with some officials stopping short of calling the Russia situation a full-scale invasion for now. LME copper is in the green as risk comes off the worst levels. Dalian iron ore futures also saw gains overnight as the metal recovers from its recent bout of selling. In terms of ags, wheat and corn prices have also been on the rise given Russia’s large market share.

22 Feb 2022 - 10:48- Research Sheet- Source: Newsquawk