A mining truck in Thailand helps meet global demand for commodities.
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- Global shares edged up Tuedsay, paring overnight losses in volatile trade, as commodities continued to surge.
- Russia warned of oil hitting $300 a barrel, and said it could cut off European natural gas supply if the West bans its energy exports.
- Nickel rose more than 100% to $100,000 a ton in minutes, reflecting the scale of panic buying around the Ukraine crisis.
Global shares pulled off this week’s multimonth lows on Tuesday, but trade was volatile as soaring commodity prices threatened to overwhelm already-fragile economic growth.
The latest potential sanction on Russia over the Ukraine war is a Western ban on the country’s oil exports. Concerns about this on Monday catapulted Brent crude to within a few dollars of 2008’s record highs.
Meanwhile, worries about Russian supply were fueling a searing rally in nickel, which has trebled in just three trading days to new record highs.
US stock futures pared overnight losses, while those on the S&P 500 and the Dow Jones edged up by 0.2%, having fallen by almost 1% earlier. Those on the Nasdaq 100 edged into positive territory, having shed over 1.0% in Asia trading.
In response to the potential oil embargo, Russia has threatened to cut natural gas supplies to Europe, and warned oil could hit $300 a barrel should any restrictions on its 7 million barrels per day in exports come into force.
Brent crude was last up 1.7% at $125.15 a barrel, having risen to as much as $139.13 a barrel on Monday, the highest level since July 2008. WTI futures were up 1.4% at $121.17 a barrel.
Economies around the world were already facing rising price pressures, and central banks have had to rapidly switch into interest rate-hike mode to ward off a more damaging spike in inflation. But the recent surge in commodity prices has drawn comparisons with the energy-driven price shocks of the 1970s and the recessions that ensued.
“This price jump, along with that seen in other commodities, is not only raising concerns about price pressures, but also about the stiff headwinds that it will pose to economic growth, as input prices surge causing companies to reduce production,” Caxton FX strategist Michael Brown said.
“As a result, the word ‘stagflation’ seems to be getting thrown around more and more, with echoes of the ’70s growing louder, especially as we’re now dealing with a commodity shock on top of everything else,” he added.
Read more: The Ukraine war has sent oil soaring to its highest since 2008 and sparked fears about ‘stagflation’. Here’s what that is, and why it’s investors’ worst nightmare.
Nickel prices briefly rose by 110% on the day on the London Metal Exchange to trade at a new record high above $100,000 a ton, before subsiding to around $82,000. Investors have scurried to seek alternative supplies to Russian exports. Russia is the world’s third-largest producer of the metal, behind Indonesia and the Philippines.
“Overall, it’s fair to say that if commodities stay at these elevated levels, it will make life even more difficult for central banks, who will have to try and thread the needle between preventing inflation becoming entrenched without aggravating the slowdown with higher interest rates,” Deutsche Bank strategist Jim Reid said.
In Europe, trading was volatile. The Stoxx 600 fell 0.6% in early trade, before bouncing back for a gain of 1.4%, while Frankfurt’s DAX initially fell 1%, before paring losses and rising 2%.
Asian stock markets came under intense pressure. Benchmark indices in top commodities importer China fell between 2% and 2.6%.
The dollar rallied sharply against trade-sensitive emerging currencies, like the Brazilian real, the Mexican peso and the Thai bhat, gaining between 0.5 and 1.0%.
“The dollar has continued to strengthen as global liquidity conditions deteriorate, and energy prices have spiked again,” ING strategists Chris Turner and Francesco Pesole said in a daily note.
“All focus now is on the magnitude of the projected shock to oil and gas supply from Russia, either from Russia itself or from self-imposed curbs by Western countries,” they said.
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