Russia's invasion of Ukraine sent crude prices above $100/b Feb. 24. But the impact of the conflict is also felt in other energy and commodity markets such as natural gas and agriculture.
1. Saudi Arabia remains committed to OPEC+ agreement with Russia
What's happening? Saudi Arabia's Crown Prince Mohammed bin Salman affirmed his "kingdom's keenness on the stability and balance of oil markets" and its production commitment to the OPEC+ alliance. This was according to a report carried by the official Saudi Press Agency, after a call between the Saudi Prince and French President Emmanuel Macron Feb. 27 to discuss the Russia-Ukraine conflict's impact on energy markets.
What's next? OPEC+ is set to hold a meeting March 2 to decide on April output levels. The alliance, formed between OPEC, Russia and nine other producing countries, is now facing far more volatility as governments around the world pile on sanctions and diplomatic pressure on Moscow.
2. European coal returns could offer some relief to gas market in event of Russian gas supply cut
What's happening? Russia's military invasion of Ukraine has put future supplies of the country's gas to Europe in jeopardy. The European power sector's ability to shift away from gas-fired power generation is limited by the high level of coal, lignite and nuclear plant closures in recent years.
What's next? As much as 17 GW of coal and lignite capacity in Western Europe has recently closed, is due to close this year or is unavailable for regular running due to being held in strategic reserves. In the event of a disruption in Russian gas supply, S&P Global Platts Analytics expects some of this capacity could return to market. In the unlikely scenario that all 17 GW returned, this would displace up to 7 GW of gas generation (equivalent to 30 mcm/d of gas demand) with a further 5 GW (22 mcm/d) being discounted by the assumed 2% drop in power demand resulting from higher energy costs and worsening macroeconomic outlook.
3. Wheat, vegetable oil prices spike as buyers scramble for alternatives amid Black Sea blockades
What's happening? Prices of Australian wheat and crude palm oil from Indonesia surged in the week to Feb. 25, following the start of Russia's invasion of Ukraine. The closure of Black Sea ports forced buyers to start looking for alternatives for the vegetable oil and grains. In physical markets, crude palm oil FOB Indonesia shot up by $100/mt in a single day Feb 24, and corrected to close at $1,615/mt Feb. 25, Platts data showed, while rival soybean oil crossed the $1,600/mt mark and settled at $1,587.99/mt. Similarly, Australian premium white wheat FOB prices rose $10/mt on day to $362/mt.
What's next? Any disruptions to the trade flow may lead to higher prices of vegetable oil and grains which surged to elevated levels last year. Top buyers India and China continue to await updates from Ukrainian suppliers. Australian wheat FOB prices are likely to gain further in coming weeks, market sources said, as Australia is looking at an excess exportable supply on the back of a record output.
4. … while LatAm FOB soybean oil prices also hit record highs
What's happening? South American FOB soybean oil outright prices have surged to historical highs, tracking soaring Chicago Board of Trade futures and rising crude oil and edible oil prices. On Feb. 24, both the Argentinian FOB Up River and the Brazilian FOB Paranagua prices for April loading crossed the $1,600/mt mark for the first time, increasing by nearly 50% year-on-year.
What's next? Indian demand for South American soybean oil supply will remain in the spotlight, even amid rising FOB outright prices. India, the world's top importer of edible oils, is expected to remain active over Argentina and Brazil's supplies given higher palm oil prices and uncertainties about sunflower oil from the Black Sea given the Ukraine's invasion by Russia.
Reporting and analysis by Herman Wang, Glenn Rickson, Aditya Kondalamahanty, Sampad Nandy, Jose Roberto Gomes, Rafael Savoia