Crude prices on Feb. 24 surged over 7% hours after Ukraine officials announced Russia had launched a "full-scale invasion", triggering concerns over potential disruptions to supply of energy and resources from oil to grains.
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At 10:06 GMT, the ICE April Brent futures contract was up $7.95/b (8.21%) from the previous close at $104.79/b, while the NYMEX WTI April light sweet crude contract rose $6.66/b (7.23%) to $98.80/b.
Russian gas exporter Gazprom said Feb. 24 that its shipments of Russian gas via Ukraine to Europe are continuing as normal, hours after officials in Kyiv said Moscow had launched an invasion.
As commodity and shipping markets weigh the potential fall-out, Russia has suspended shipping in the Sea of Azov until further notice, following Russia's move to launch military operations in the Donbas region of Ukraine.
TotalEnergies CEO Patrick Pouyanne speaking at International Energy Week responded by saying that the Ukraine conflict creates "necessity" for Europe to ensure energy supply security.
S&P Global Platts Analytics has said its base case demand forecast continues to assume growth of 4.1 million b/d in 2022. However, under a limited incursion scenario in Ukraine, global demand growth could ease by 0.7 million b/d.
-- Oil prices first hit seven-year highs in mid-January, spurred by a recovery in mobility levels, worries over spare capacity among key producing nations, slow progress in getting Iran's sanctions lifted and tensions over Ukraine.
- Dated Brent/Brent frontline swaps for March were up 31 cents on the day at $97.37/b Feb. 23.
- Prices for Russia's Urals crude, which ships via Ukraine, have increased since mid-December in line with global oil prices, and despite the threat of sanctions on Russia. Platts assessed Urals crude at $90.72/b on Feb. 23, up 17% so far this year.
-- European gas prices fell heavily over New Year but rose mid-January, partly as fears of a Russia-Ukraine conflict refused to abate.
- Front-month gas prices on the benchmark Dutch TTF hub were up 18% from the start of the month at $29.417/MMBtu equivalent on Feb. 23 at London close. Spot TTF gas had surged to a record $59.538/MMBtu Dec. 21 before falling to $21.563/MMBtu at the end of the year, according to Platts data.
- Platts assessed the JKM LNG benchmark for April deliveries at $27.848/MMBtu on Feb. 23, up close to 20% from the start of February.
-- Carbon prices and coal also likely to respond to higher risk.
- Any conflict affecting gas supplies into Europe could have knock-on effects on power, carbon and coal prices. Curve coal prices (CIF ARA front quarter) climbed to $177/mt on Feb 23.
- Prices in the EU Emissions Trading System hit a new record Feb. 4 of Eur97.50/mtCO2e (December 2022 delivery) on the ICE Endex exchange, partly due to continued uncertainty over European gas stocks. The price was Eur 95.07/mtCO2e on Feb 23.
-- Ukrainian corn prices have been rising on the back of strong global demand and Russian plans to impose export duties on grains, but slipped most recently as tensions grow.
- Ukraine FOB Black Sea corn export prices hit a seven-year high of $301/mt in May 2021. Prices then dipped to $254/mt in September but have risen steadily since then, to be assessed at $289/mt as of Feb. 23.
- Ukraine's wheat exports remained steady in the week to Feb. 21, but export prices took a tumble, assessed at $309/mt Feb. 23, around 3.4% lower on the month due to ongoing tensions in the Black Sea region.
-- Russian gas transport through Ukraine has been in decline in recent years and collapsed at the start of 2022.
- Ukraine remains a key transit route for Russian gas to Europe, accounting for a little under 10% of Europe's gas demand in 2021.
- Under a five-year transit deal between Gazprom and Ukraine's Naftogaz in 2019, the Russian company agreed to send a minimum of 110 million cu m/d of gas via Ukraine to Europe under ship-or-pay terms in 2022, meaning it must pay for that level of transit whether it uses the route or not.
- Deliveries via Ukraine at the key Velke Kapusany entry point fell sharply in January, recovered then slipped again mid-February.
- Nominations at Velke Kapusany rose 28% on the day Feb. 23, with supplies to the metering point on the Slovakian-Ukrainian border totaling 376 GWh (35.5 million cu m). Gas receipts into Austria via Baumgarten also saw gains in nominations on the Feb. 23 gas day, with flows of 52 million cu m.
-- Ukraine is a critical route for oil flows into Eastern Europe and the fringes of the EU.
- Russian oil transits Ukraine to Slovakia, Hungary and the Czech Republic. Its transit of Russian crude for export to the EU was 11.9 million mt in 2021, down from 12.3 million mt in 2020, while oil transit to Belarus remained unchanged at about 800,000 mt.
- Last year crude shipments via the southern branch of the Druzhba pipeline network included 5.2 million mt, or around 104,427 b/d, to Slovakia; 3.4 million mt, or around 68,279 b/d, to Hungary; and 3.4 million mt, or around 68,279 b/d, to the Czech Republic.
-- Ukraine is one of the world's largest exporters of grains, with any disruption to supplies potentially affecting food security and prices.
- Ukraine accounts for around 13% of global corn exports, is the fourth-largest exporter in the world and Europe's largest by some way. Half of its exports go to the EU, with China another major importer. The corn is used in animal feed, with the biofuel sector also taking a significant share. It is forecast to export 33.5 million mt for marketing year 2021-22 to June 30.
- The country accounts for around a tenth of global wheat exports, which have risen 27% so far in marketing year 2021-22 (July to end-June) to 16.1 million mt, as neighboring Russia increased its export taxes.
- Platts Analytics projected Ukraine's wheat exports at 22.5 million mt in MY 2021-22.
-- The country is also the world's 13th-largest producer of steel and the fifth-largest exporter of iron ore by volume.
- Ukraine produced 21.4 million mt of crude steel in 2021. Some 80% of its steel output is exported.
- It exported 44.4 million mt of iron ore products in 2021 and imported 9.85 million mt of metallurgical coal and coke products. It raised 3.9 million mt of steel scrap, of which 616,000 mt was exported.
-- Russia could close off Ukrainian ports due to its control of Crimea and Black Sea chokepoints.
- The Kerch Strait connects the Black Sea and the Sea of Azov and is used both ways, to supply soft commodities, ship steel/pig iron and other raw materials from Mariupol.
- Russia's Azov and Rostov ports serve as both transshipment ports to load deep water vessels at the Russian port of Kavkaz and as loading points to make small parcel shipments of wheat, barley and corn to destinations in the east Mediterranean.
- Exports of both corn and wheat take place through a number of Ukrainian sea ports, including the southwestern Panamax-capable ports of Odessa, Pivdennyi and Chornomorsk, all of which are well away from the front line. However, they are all within easy reach of Crimea, which is currently under Russian occupation.
-- The security of the Druzhba pipeline and ports are key for markets.
- Ukraine ships Russian oil to Slovakia, Hungary and the Czech Republic via the southern leg of the key 25 million mt/year Druzhba pipeline.
- Mariupol, Ukraine's main port in the Sea of Azov, is vital for pig iron and steel export from Ukraine and imports of steelmaking raw materials, particularly coking coal. In recent years, steel shipments from Mariupol have represented about a quarter of Ukraine's total exports in value terms.
- Any limitation of vessels through the Kerch Strait would likely affect supply routes used by Ukrainian mining and steel group Metinvest and other bulk shipping on the route.
-- The future of the now complete Nord Stream 2 gas link could rest on affairs in Ukraine.
- Germany has suspended certification of the route, and US President Biden said Feb. 22 that, "Because of Russia's actions, we've worked with Germany to ensure Nord Stream 2 will not -- as I promised -- will not move forward."
- The EU's High Representative Josep Borrell has said Nord Stream 2 would not become operational in the case of an invasion, but that did not mean it would never enter operation.
- Urals is a medium sour crude that is a staple for refiners in Northwest Europe and the Mediterranean. It is exported via the Druzhba pipeline, a branch of which runs through Ukraine, as well as via seaports Primorsk and Ust Luga on the Baltic Sea, and Novorossiisk on the Black Sea. Around 1 million b/d flows through the Druzhba pipeline system from Russia to Europe.
-- Attacks on Feb. 24 come after the US, UK and Europe responded with limited sanctions on Russia. More are now expected.
- Fresh financial sanctions against Russian exporters could be implemented, including a ban on using the SWIFT system and accessing the US dollar. Two thirds of Russia's export contracts for hydrocarbons are in dollars, according to the Central Bank.
Both measures were first mooted when original sanctions were introduced against Russia in 2014 over its role in the conflict in Ukraine. Russian exporters may be able to trade in alternative currencies or using alternative networks to SWIFT.