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The commodities market was on fire yet again on Wednesday with crude oil prices blazing to a seven-year high with coal, iron ore, aluminium and nickel also gaining in tandem.
Crude oil futures were up 12 per cent in the last 24 hours with Brent topping $110 a barrel and WTI up by more than 4 per cent touching $108 a barrel. On India’s Multi Commodity Exchange (MCX), crude oil futures were up by more than 4 per cent in the morning hours.
Crude oil surged on the IEA (International Energy Agency) statement that global energy security is under threat following Russia’s invasion of Ukraine.
Quoting IEA Executive Director, Fatih Birol, a statement posted on IEA website said the situation in energy markets is very serious and demands the full attention of the members of IEA. “Global energy security is under threat, putting the world economy at risk during a fragile stage of the recovery,” the statement said.
March crude oil futures were trading at ₹8,229 on MCX in the initial hour of Wednesday morning against the previous close of ₹7,905, up by 4.10 per cent and April futures were trading at ₹7,980 against the previous close of ₹7,664, up by 4.12 per cent.
May Brent oil futures were at $110.18 up by 12.46 per cent and April crude oil futures on WTI at $108.58, up by 5 per cent.
Bloomberg spot commodity index jumped the most since 2009, while CRB commodity index increased 4.38 per cent to 298.67. Composite index of commodity sector, S&P GSCI, rose 5.61 per cent to 3558.34.
Energy security impacts
The 31 member countries of the Governing Board of IEA, which conducted an extraordinary meeting on March 1, agreed to release 60 million barrels of oil from their emergency reserves to send a unified and strong message to global oil markets that there will be no shortfall in supplies as a result of Russia’s invasion of Ukraine. The extraordinary meeting was held at ministerial level.
The IEA ministers, who attended the meeting, noted with concern the energy security impacts of the actions by Russia, and voiced support for sanctions imposed by the international community in response.
The meeting noted that Russia’s invasion comes against a backdrop of already tight global oil markets, heightened price volatility, commercial inventories that are at their lowest level since 2014, and a limited ability of producers to provide additional supply in the short term.
The statement said that IEA members hold emergency stockpiles of 1.5 billion barrels. The announcement of an initial release of 60 million barrels, or 4 per cent of those stockpiles, is equivalent to 2 million barrels a day for 30 days.
The coordinated drawdown is the fourth in the history of the IEA. Previous collective actions were taken in 1991, 2005, and 2011.
Moderate supply increases
According to IEA, Russia is the world’s third largest oil producer and the largest exporter. Its exports of about 5 million barrels a day of crude oil represent roughly 12 per cent of global trade – and its approximately 2.85 million barrels a day of petroleum products represent around 15 per cent of global refined product trade. Around 60 per cent of Russia’s oil exports go to Europe and another 20 per cent to China, IEA statement said.
Now the investors are looking at the meeting of OPEC (Organization of the Petroleum Exporting Countries) and its allies, which is scheduled for Wednesday. The meeting will discuss output policy. Market reports said the meeting is expected to stick to OPEC’s plan of moderate supply increases despite the market turmoil brought by the invasion.
In the crude oil outlook, Rahul Kalantri, Vice-President (Commodities) of Mehta Equities Ltd, said the benchmark US crude oil grade WTI spiked by 11 per cent in early afternoon futures trading, to $106.75 a barrel, the highest since June 2014 ($107.49 a barrel).
“The war in Ukraine is getting very ugly and destructive and hostilities between the west and Russia are intensifying. High risk for disruptions to both crude and natural gas,” he said.
“We expect crude oil prices to remain positive and WTI could test $110 a barrel in the upcoming session. Crude oil is having support at $100–97.70 and resistance is at $106.60–110 in today’s session. In rupee terms crude oil has support at ₹7,540-7,175; while resistance is at ₹8,179–8,453,” he added.
Natural gas
March natural gas futures were trading at ₹355.30 on MCX in the initial hour of Wednesday morning against the previous close of ₹347, up by 8.30 per cent.
IEA meeting discussed Europe’s significant reliance on Russian natural gas and the need to reduce this by looking to other suppliers. On Thursday, the IEA Secretariat will release a 10-point plan for how European countries can reduce their reliance on Russian gas supplies by next winter, the statement said.
Agri-commodities
On the National Commodities and Derivatives Exchange (NCDEX), March castorseed contracts were trading at ₹7,340 per quintal in the initial hour of Wednesday morning against the previous close of ₹7,050, up by 4.11 per cent; and April contracts were trading at ₹7380 against the previous close of ₹7060, up by 4.53 per cent
March guarseed futures were trading at ₹6,002 on NCDEX in the initial hour of Wednesday morning against the previous close of ₹5,883, up by 2.02 per cent; and April guarseed futures were trading at ₹6,047 against the previous close of ₹5,922, up by 2.11 per cent.
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