The war in Ukraine is pushing commodity prices well beyond their recent inflation-induced highs, and it appears things may get worse. Bank of America says that commodity prices have seen their strongest start since 1915. Here are some highlights for the week (to confirm these are changes for the week, not the year). 

  • Oil prices increased by 26% to its highest level since 2008. Just this morning, March 7, 2022, oil traded from $116 up to $130 and back. 
  • Natural gas popped 80% in Europe
  • Wheat hit its daily limit six days in a row (and counting) to go up over 40%.  More than a quarter of the wheat produced in the world comes from these two countries. 
  • Aluminum hit a record high
  • Coal prices doubled before falling back slightly. The expectation is that countries will fall back on a reliable energy source if natural gas supplies stop.  Russia supplies coal as well.

It is expected that additional sanctions may target the Russian energy sector, but the private market is already doing so. Lending for shipping companies to move the oil is drying up, insurance companies refuse to insure tanker travel to and from Russia, and ports around Europe and elsewhere refuse to offload ships full of Russian oil. Rumors abound that the Iran nuclear deal is being revived and that the United States is talking to Venezuela to find alternatives.

The unprecedented step of freezing sovereign Russian assets could give China and others pause as they consider lending to the United States and others. For now, US debt and the dollar are safe-haven assets, but this could change quickly. With commodity prices hitting all-time highs, the chance of recession is increasing quickly. Central banks find themselves in a difficult position due to their easy monetary policies and the amount spent on COVID mitigation. Hopefully, they left enough room to maneuver if they need to, but reckless spending catches up to everyone eventually.     

If you want to see some details on how we got here, please read our article just before the invasion, War on Low Energy Prices, that describes the choices that led to our vulnerabilities to an energy crisis.    

If you want to learn about adding commodities to your portfolio, please call me at 847-877-0887. 

Photo by KWON JUNHO on Unsplash