by Commodity Online
| In a report it pointed out that it views crude oil, diesel, natural gas, palladium, nickel and grains as the markets most sensitive to an escalation in geopolitical risk surrounding Russia and the Ukraine. 03 Apr 2014 LONDON (Commodity Online): Downgrades to the China growth outlook and the threat of an escalation in geopolitical risk surrounding Ukraine have introduced ongoing event risk for commodity markets this year, according to Deutsche Bank. In a report it pointed out that it views crude oil, diesel, natural gas, palladium, nickel and grains as the markets most sensitive to an escalation in geopolitical risk surrounding Russia and the Ukraine. Meanwhile demand prospects for industrial metals and bulk commodities will be the most vulnerable among the five broad commodity sectors in the event that Chinese economic activity fails to recover. -The one bright spot in our macro assumptions is the US. After disappointing real economy data over the winter months, triggered in part by extreme cold weather, we expect the next few months will be characterized by positive growth shocks. However, we expect this will prove problematic for the precious metals sector and specifically gold since stronger growth in the US will tend to deliver further advances in US real yields, the S&P500 and the US dollar. Events in Ukraine have highlighted once again the strong interdependency between the EU and the Russian Federation. However, Europe’s slow progress in shale gas exploration and the prospect that North Sea oil production will continue to disappoint suggest little near term relief in the region’s dependency on Russian energy imports. Similarly Russian efforts to diversify its energy exports towards Asia have so far also proved elusive. Europe imports 32% of its crude oil, 33% of its thermal coal and 12% of its gasoil requirements from Russia. In addition, Europe is dependent on Russia for 30% of its natural gas supply, of which about 50% of these imports, or 15% of EU gas supply, arrive via Ukraine. For the time being the crisis in Ukraine has so far not triggered any reduction in natural gas flows from Russia into Europe. Moreover, factors which will moderate the potential impact of any disruption to natural gas flows is the fact that gas storage levels across Europe are at unusually high levels owing to a mild European winter. However, Russia still remains an important global commodity producer, accounting for 33% of global palladium production and between 10-12% of the world’s production of nickel, crude oil and platinum. The threat of economic sanctions on Russia could have far-reaching implications for commodity markets and the broader world economy. Indeed Russia is also a major source of European oil products, most particularly diesel. Any disruption to this supply could therefore significantly impact global oil prices. Ukraine is also a major agricultural producer and consequently any disruptions to the country’s exports or plantings in the eastern part of the country could have a meaningful impact on global balances. |
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