European gas prices soar and oil to $105 after Russia attacks Ukraine
European natural gas prices jumped nearly 70% and crude oil exceeded $105 a barrel for the first time since 2014 after Russia’s invasion of Ukraine sparked fresh concerns about global energy supplies.
Fears that the war could disrupt global energy supplies sent Brent crude prices up 9% to $105.79 a barrel. Futures contracts linked to TTF, Europe’s wholesale gas price, jumped 69% to €142/megawatt hour before reducing the gain to 40%. Gas prices in Europe have risen from just €16 a year ago.
Russia is the main raw material producer, with Europe dependent on it for about a quarter of its oil and more than a third of its gas. It is also the world’s largest supplier of wheat.
While no new restrictions have been introduced on Russian energy companies other than gas pipeline operator Nord Stream 2, US President Joe Biden will meet G7 leaders later on Thursday to discuss coordinate more “severe” sanctions to punish Russia.
Analysts at S&P Global Platts said the impact of “physical disruptions” on Russian gas flowing to Europe via Ukraine would be “extreme” and likely similar to the price increases demonstrated. expected in December when wholesale gas prices in Europe rose above €180 MWh due to the cold. weather and problems at French nuclear power plants.
“Any disruption to Ukrainian shipping flows will immediately tighten gas supplies to Europe and push spot prices higher,” they said.
Ben Luckock, co-head of oil trading at Trafigura, one of the world’s largest commodity traders, said the market is waiting to see how much Western sanctions against Russia are expected later in the day.
“If there is a threat to energy flows, oil prices could go significantly higher,” he said. “Otherwise, we probably wouldn’t get very far because the risk is it’s all the other way around.”
Russian crude has been trading bearish for the past 48 hours with a sign that buyers, wary of the possible impact of sanctions, have begun to avoid Russian goods, Luckock added.
Opec, the oil producer group, is struggling to meet its output target as crude demand rebounds after easing lockdown restrictions. This has pushed prices higher, with analysts warning that the ability to increase supply is limited if flows from Russia are affected by sanctions.
The same is true in gas markets, where no country can replace the kind of volume that Russia can provide.
Gazprom said on Thursday that exports through Ukraine to Europe are still continuing. Gas inventories across the continent are at a five-year low.
“The price of oil and natural gas has become a barometer of the crisis,” said Norbert Rücker of Julius Baer. “Any disruption of the flow between Russia and Europe, due to damage or sanctions, will add to the current scarcity of supply.”
Other commodity markets were also affected by Russia’s onslaught on Ukraine.
Wheat futures in Chicago rose nearly 6% to $9.26 a bushel, the highest since July 2012. Russia and Ukraine are leading grain exports, producing 14% of global wheat and accounts for less than 30% of total wheat exports. The two countries are also major exporters of corn and sunflower oil.
Concerns about supply increased after news that Russia blockaded the Azov, an inland sea connected to the Black Sea. Both Ukraine and Russia have major loading ports, and a ban on commercial ships from Azov to the Black Sea would likely wreak havoc on grain and steel markets.
“This is a really dire situation for the agricultural market,” said Dave Whitcomb at commodities specialist Peak Trading Research. “There are fundamental concerns around whether grain is flowing out of the Black Sea states, and both the wheat and corn markets are on fire.”
Metal prices also rose on Thursday, with aluminum, used in everything from beer cans to cars, rising more than 3.5% to a record high of $3,449 a tonne. Russia is a major producer of aluminum as well as copper, nickel, platinum and palladium.
In 2018, the aluminum market fell into turmoil after the United States imposed sanctions on Rusal and other companies linked to oligarch Oleg Deripaska.
“Russia is an important commodity producer so overnight developments in Eastern Europe could have important implications for the global supply chain,” said JPMorgan analyst Dominic O’Kane.
Elsewhere, gold rose more than 3% to $1,974 an ounce, a 17-month high, as nervous investors scoured the market for shelter.
However, the rising gold price does not support Polymetal much. The Russian mining company, an FTSE 100 member, lost 38% of its market value on Thursday as investors dumped shares on concerns about potential sanctions.
“Polymetal believes targeted sanctions against the company remain unlikely,” the group said in a statement.
Another big loser was Evraz, a steel producer controlled by Roman Abramovich, owner of the Chelsea football club, and Alexander Abramov. Its shares fell nearly 30%.
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