Commodity Wrap - Oil, Nickel, Wheat, Silver (08.03.2022)

Oil

• United States and European Union still consider possibility of imposing full ban on Russian oil and natural gas

• European Union imports around 2.5m bpd of Russian oil while United States imports around 100k bpd

• Current situation starts to resemble Iraqi oil ban from the beginning of 90s when Iraq invaded Kuwait, leading to an operation "Desert Storm"

• Prices jumped around 140% back then but have stabilized after few months

• Comparing that situation to the current one shows that price gains may be just beginning

• In spite of lack of sanction on Russian oil and natural gas, Western companies begin to self-sanction themselves and decide not to purchase Russian commodity

• Unless official sanctions on Russian oil are imposed, situation may stabilize over the next 6-8 weeks when companies get more clarity on what they are able to do and what they are not

• IEA points that there is a lot of spare production capacity around the world. OPEC alone has potential to boost output by around 5m bpd

There have been 10 trading sessions since the beginning of the Russian invasion of Ukraine. Oil prices behave similarly as they did during the Iraqi-Kuwait war. That war began in September 1990 and oil prices peaked in November 1990. Source: Bloomberg, XTB

Ural-grade oil is trading at almost $30 per barrel discount compared to Brent. Even though the discount is massive, oil trading firms remain reluctant to buy Russian commodities. Source: Bloomberg

Nickel

• Nickel price reached $100,000 per tonne during today's Asian session. Price in London trading exceeded $80,000 per tonne

• London Metal Exchange suspended nickel trading until at least the end of the day

• Global nickel stockpiles remain very low and possibility of sanctions cutting off Russian supply, encourage traders to take physical delivery

• Russia accounts for around 27% of global raw nickel exports and around 17% of high-grade nickel exports

• CCBI Global Markets, trading unit of China Construction Bank, had a large short position on nickel and price rally triggered margin calls

• By covering its positions, CCBI GM magnified price moves on the nickel market. It is said that company's losses from this trade may amount to billions of dollars

• LME halted settlements of nickel futures and physical deliveries of commodity amid extreme market conditions

Nickel stockpiles at LME amount to just 77 thousand tonnes. Source: Bloomberg

Russia accounts for 27% of raw nickel exports. Majority of the Russian commodity is exported to Europe. Source: OEC.world

Wheat

• Wheat trading on US exchanges was halted on Monday after prices hit limit up

• US wheat price sits at record highs

• Russia and Ukraine account for around 30% of global wheat exports. Ukrainian harvest may have been damaged by war while Russian exports may be impacted by Western sanctions (reluctance to buy like in case of Russian oil or natural gas)

• Egypt, world's largest wheat importer, is looking for wheat supply outside Russia and Ukraine

• Global wheat stockpiles would satisfy global consumption for around 130 days while European wheat stockpiles would last for only 33 days

• Demand for European wheat increases as demand for Ukrainian and Russian wheat drops

Global and EU stockpiles expressed as days of consumption. Source: Bloomberg

Wheat price jumped 60-70% since the beginning of February. Prices jumped around 50% when exports of Russian wheat were banned in 2012. Taking a look at price action from 2001-2007, potential target of the ongoing rally could be 1,460-1,640 cents per bushel area. Source: xStation5

Silver

• Precious metals enjoyed price gains recently

• Increase in copper prices may support silver prices as the two commodities are mined together

• Price gains on the gold market exceed price gains on the silver market

• Textbook range of an upside breakout from triangle pattern points to $28 per ounce

• Seasonal patterns point to a possibility of a small pullback

• Silver ETF holdings are little change while gold ETFs increase their holdings quite significantly

Silver ETFs have been rather inactive as of late, in spite of strong gains on the silver market. Source: xStation5

Silver trades near a mid-point of a textbook range of the upside breakout from a triangle pattern. Source: xStation5