As we head into the weekend, all commodities markets have eyes on Sunday's referendum on Crimea.
A further escalation in the crisis could have implications for the energy and grains market given Russia's and Ukraines dominant positions in the two.
We are headed for an interesting weekend for commodity markets. Sunday’s referendum on Crimea could have great implications for the energy market and the grains market given Russia’s and Ukraine’s dominant position in these two markets, respectively. Russia and Ukraine are among the world’s largest energy and grains exporters. The reaction in the market two weeks ago was a harsh warning of this (see Research Commodities: Ukraine crisis puts commodity markets on alert, 3 March 2014).
While European natural gas prices have lost a little – around 1-2% – this week, wheat prices have gained 2-3%. This suggests that the market is more worried about the implications for grains than for energy with regard to a further escalation in the conflict. However, the rise in wheat over the past week is moderate compared with the spike on Monday. Also, grains prices over the past week have been influenced by the drought in Brazil and the WASDE report. Although there is great reason to be on alert as we head into the weekend, it is likely to take a significant escalation for grains and energy prices to rise sharply again. Both the Russian and Ukrainian economies are struggling at the moment and both countries desperately need every bit of revenue they can get from commodities exports. Hence, there is great incentive to leave the two countries’ commodity supplies out of the conflict. Furthermore, the last thing the shaky global recovery needs right now is a spike in commodity prices on supply concerns.
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