AFKI Commodities Report: Ukraine Crisis Fuels Oil, Gold Rally

AFKI Commodities Report: Ukraine Crisis Fuels Oil, Gold Rally

Oil prices surged following Russia’s intervention in Ukraine, raising fears of global supply disruptions. Gold also climbed sharply while platinum and palladium prices are spiking upwards now after South African wage talks collapse again.

U.S.  oil futures rose to their highest finish in over five months at near $105 a barrel as Russia moved to tighten its military hold on the Crimea,   before easing back by midweek. Brent crude futures also climbed, reaching their highest settlement since late December.

The U.S. West Texas Intermediate (WTI) for April delivery on the New York Mercantile Exchange (Nymex) rallied $2.33 to settle at $104.92 a barrel on Mar. 3. This was the highest settlement for a most-active contract since mid-September. On the ICE Futures Europe exchange in London, Brent North Sea crude for delivery in the same month rose $2.13 to finish at $111.20 a barrel, a settlement  level not seen since late December.

Oil prices slipped back at midweek amid some temporary easing of the geopolitical tensions as Russia appeared to soften its stance on Ukraine. But at the time of writing, the crisis was accelerating after Crimea’s parliament on Mar. 6 voted for the southern Ukrainian region to become part of the Russian Federation.  A referendum on the decision is to be held on Mar. 16.

An unexpected rise in U.S. distillate fuels stocks, which include diesel and heating oil, also put pressure on oil prices as market players interpreted the inventories’ increase as a sign of softening U.S. energy demand.

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The U.S. Energy Information Administration (EIA) on Mar. 5 reported a 1.4 million barrel rise in the country’s distillate fuel inventories in the week ended Feb. 28, taking the market by surprise; many had expected a further fall in distillate fuel stocks. The energy body said distillate fuel product supplied over the last four weeks at an average 3.6 million barrels per day was down 4.3 percent from the same period in 2013.

U.S. commercial crude stocks were also up, as was expected by the market; climbing 1.4 million barrels to 363.4 million barrels, according to the EIA. Gasoline inventories were 1.6 million barrels lower last week.

Crude oil for April delivery on Nymex fell $1.88 a barrel to settle at $101.45 a barrel on Mar. 5, its lowest finish since Feb. 14. Brent crude for April on ICE Futures Europe also finished lower, at $107.76 a barrel. But in late trade in London on Mar. 6. Brent crude had moved up above $108 a barrel.

Like oil, gold also moved up sharply on the Ukraine crisis as investors sought safe-haven assets like the precious metal.  Weaker U.S. economic growth also added to the safe-haven appeal.  Spot gold surged to a four-month peak of $1,349.50 an ounce in the pm fix on the London bullion market on Mar. 3. U.S. gold futures for April delivery on Comex jumped  $28.70 to settle at $1,350.30 an ounce. This represented the highest finish for a most-active contract since Oct. 30.

At midweek, spot gold was down over $9 from Mar. 3, with the precious metal at $1,340.30 an ounce in the am fix in London on Mar. 6   U.S. gold futures also retreated with the April contract on Comex finishing at $1,334.25, and some $3.65 down on the day. But with tensions in Ukraine escalating at time of writing, gold futures had moved up again to $1,351 by early afternoon trade on Mar. 6

In contrast to oil and gold, copper dropped to a three-month low on Mar. 3 as investors bailed out of their base metal holdings as Russia upped the ante in Ukraine. Unlike the safe-haven appeal of gold, copper is among the assets perceived to be more risky to hold in times of geopolitical or economic crisis. Three-month copper on the London Metal Exchange (LME) hit a three month low of $6,944 a tonne on Mar. 3 before closing up at $6,968.

As some of the Russia-Ukraine tensions eased and the investor flight reversed, LME copper regained some of its early week losses to finish at $7,055 a tonne on Mar. 5.

Platinum, palladium up on wages impasse, Russia worries

Spot platinum prices spiked up to a five-and-a-half-month high this week after wage talks collapsed between the top three platinum producers and South Africa’s Association of Mineworkers and Construction Union (Amcu) on Mar. 5 as well on worries about Russian-Ukraine tensions.

South Africa  produces around 40 percent of the world’s platinum while more than 80 percent of global palladium production is concentrated in just two countries:  South Africa and the Russian Federation, with the latter country alone  accounting for nearly half of total palladium supply.

The labour stoppage is affecting South African mines owned by Anglo American Platinum (AmPlats),  Impala Platinum (Implats) and Lonmin and is now entering its seventh week.

Amplats said in a statement the talks have been “suspended indefinitely”. South Africa’s Commission for Conciliation, Mediation and Arbitration (CCMA), which has been acting as government mediator, said “the parties still remain far apart”. The latest round of wage talks took place on Mar. 3 and 4.

Amcu in its first concession since the strike began, said on Mar. 4  that it would now accept the pay increases to be staggered over four years rather than to become effective immediately. All three platinum producers have said Amcu’s revised demand remains unaffordable as it still represents an increase of 30 percent in the basic salary over four years.

Spot platinum climbed to $1,484 in the pm fix in London on Mar. 6, its highest since last September. Even on the eve of the strike, which began Jan. 23, the spot precious metal had moved up to just $1,458 but subsequently eased back. U.S. platinum futures on Comex reached  $1,476.60 an ounce by close on Mar. 5,  more than $47 up on a week earlier.

Sister metal palladium also spiked higher with the spot metal hitting $780 an ounce in the pm fix in London on Mar. 6.

Platinum and palladium prices, hitherto, have been largely unresponsive to the South African strike because the affected producers and fabricators had built up stocks ahead of the labour dispute. However, there are growing concerns in the market about supply, although a number of analysts are of the view there presently is sufficient metal around to meet demand.