How Russia-Ukraine war could trigger gas price explosion

Highlights

• The ongoing conflict between Russia and Ukraine has fuelled a rally in the commodity market.
• The prices of crude oil surged to decade-high level on Thursday while coal prices zoomed more than 50% in the last one month.
• Russia accounts for nearly 40% of the total gasoline exports to Europe, and its decision to cut its supplies will create an acute shortage of fuel in the international market.

The ongoing conflict between Russia and Ukraine has fuelled a rally in the commodity market. The prices of most of the commodities ranging from crude oil to agricultural products have surged to multi-year high levels.

Shipping disruptions coupled with sanctions on Russian banks from Western allies including the US and Europe are the primary catalysts, jacking up the prices of commodities.

Good Read: How a Russian invasion of Ukraine might impact crude oil prices

Russia-Ukraine war ignites a rally in commodities

The prices of crude oil surged to decade-high levels on Thursday and ASX oil and gas players including Santos (ASX:STO), Woodside Petroleum (ASX:WPL), Karoon Energy (ASX:KAR),  Melbana Energy (ASX:MAY), and Horizon Oil (ASX:HZN) reached their 52-week highs.

Coal prices have also soared more than 50% in the last one month. Among industrial metals copper, aluminium, and palladium have recorded significant gains, while the highest impact of the war has been witnessed on agricultural products like wheat, corn, palm oil, oats, etc.

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Russia is a significant supplier of various commodities and the staggering rise in the prices of these commodities has been stoked by fears of supply shortage. What makes matters more concerning is the fact that Russia is the third-largest producer of crude oil in the world, the second-biggest natural gas producer after the US, and the third largest coal exporter. The country is also the second-largest exporter of wheat globally.

The latest round of US sanctions on Russia's oil refining sector has raised concerns that Russian oil and gas exports could be targeted next.

The conflict has stoked the fears of inflation in the near term which would largely result from shortages and rising costs of commodities. Yet some of the inflation will likely take months to appear, as per economists.

However, the timing and scale for the same are difficult to predict, given the fluidity of the military conflict and the novelty of Western sanctions against Russia.

Must Read: Crude oil hits fresh seven-year high amid Russia-Ukraine tension

How Russia-Ukraine War Could Trigger Gas Price Explosion?

Will the war trigger gasoline price explosion?

The price of gasoline is likely to be impacted by the war's inflationary pressure in the near term. Indeed, gasoline prices have grown since the start of Russia's invasion, having risen even before the invasion.

Source: Copyright © 2022 Kalkine Media®

Crude oil is the main component of gasoline and with rising crude oil prices, gasoline prices are poised to grow. Furthermore, Russia could also cut its European gasoline supplies, as a retaliative move in response to Western sanctions. Since Russia accounts for nearly 40% of the total gasoline exports to Europe, the country's decision to cut its supplies will create an acute shortage of fuel in the international market and the prices would eventually explode.

Must Read: Crude oil rises on fresh Russia-Ukraine war warnings

Bottom Line

Russia-Ukraine war has already sparked a rally in commodities. Furthermore, rising inflationary pressure and Russia’s potential decision to cut European gasoline supplies could trigger a momentum in gasoline prices too, in the near term.