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Highlights
- Western allies, including the US and the European Union, have blocked Russian banks from the SWIFT payment system.
- Moscow's invasion of Ukraine has surprised the market, with investors making huge sell-offs.
- With firm sanctions remaining in place, prices of commodities are expected to touch new heights in the near term.
Commodity prices have rallied wildly since the announcement of the ongoing war between Russia and Ukraine. The volatility in prices of commodities seems to have picked momentum after Tuesday when Western governments decided to isolate Russia by barring the country from the global financial system, SWIFT, in an effort to inflict pressure on Russian trades. SWIFT is a global payment system that facilitates rapid cross-border payments, making international trade flow smooth.
Prices of most of the commodities ranging from agricultural to energy products remained bullish last week, underpinned by concerns of supply disruptions.
Must Read: Crude oil rises on fresh Russia-Ukraine war warnings
Crumbling equities and rising commodities
Moscow's invasion of Ukraine has surprised the market, with investors making huge sell-offs. While equities crumbled, commodities, including crude oil, gold, aluminium, copper, lithium and nickel traded around multi-year highs.
Source: Copyright © 2022 Kalkine Media®
Crude oil has recorded substantial gains in the last week due to supply fears. Brent Crude Oil 1-month futures surpassed the 8-year US$110/bbl mark during the week. The US had released crude oil from strategic petroleum reserves (SPRs), which failed to calm fears of supply disruptions arising from the Russia-Ukraine war. Members of the International Energy Agency (IEA) have agreed to release over 60 million barrels of crude oil from its strategic reserves.
Additionally, prices of aluminium hovered near an all-time high level, underpinned by fears of supply disruptions. Russia accounts for around 6% of the world’s total aluminium supply and a ban on Russia’s SWIFT global payment system by the US, South Korea, and Japan, has paralysed the country’s international trade.
Must Read: Crude oil hits fresh seven-year high amid Russia-Ukraine tension
Furthermore, Russia is the biggest producer of palladium in the world with Nornickel accounting for about 40% of the global palladium production last year. With firm Western sanctions on Russia, prices of palladium surged to a seven-month peak on Tuesday.
Rally is not limited to metals
The rally is not limited to energy and precious metals, but agricultural commodities, including wheat, have also recorded significant gains in recent weeks on rising supply concerns. In addition to this, supply constraints have also pushed prices of corn as Ukraine is among the leading suppliers of corn in the world, as per records of the Observatory of Economic Complexity.
Source: Copyright © 2022 Kalkine Media®
Good Read: How a Russian invasion of Ukraine might impact crude oil prices
Bottom Line
Considering everything, current geopolitical tensions may drive prices of commodities further up in the near term. If the stand-off between the two nations continues and firm sanctions remain in place, the commodity market will remain volatile and prices of commodities are expected to touch new heights.
