Tensions escalated on Friday after Russia escalated its attack by attacking Europe’s largest Ukrainian nuclear power plant, according to Ukrainian officials. Prices from crude oil to aluminum and wheat surged as commodities posted their most astonishing weekly gains since 1974 and during the oil crisis.
Russia’s growing isolation is killing key sources of energy, metals and crops, raising fears of chronic shortages and rising global inflation. Traders, banks and shipowners are already avoiding doing business with Russia due to difficulties getting paid, while shipping lines are cancelling or not taking bookings in the region.
A fire broke out at the Zaporozhye power plant as Russian troops began shelling installations in eastern Ukraine, Ukrainian officials said on Friday. U.S. President Joe Biden urged Russia to stop the attacks after speaking with Ukrainian President Volodymyr Zelensky.
West Texas Intermediate rose nearly 5% this week, extending gains. Global buyers are shunning Russian crude and fuel, sparking competition for alternative supplies.
The International Energy Agency has warned that global energy security is under threat, as plans by the United States and other major economies to release emergency oil reserves have failed to quell supply concerns. Global benchmark Brent crude could hit $185 a barrel by the end of the year if disruptions to Russian supplies continue, JPMorgan said. Prices were around $114 on Friday.
Wheat surged to its highest level since 2008 as fears of a global shortage deepened as the war in Ukraine cut off about a quarter of the world’s exports of staples ranging from bread to biscuits and noodles. Chicago futures rose 6.6% to $12.09 a bushel.
Jason Schenker, president of Prestige Economics, said the attack on the nuclear power plant could exacerbate risks to Ukrainian agricultural production.
“Recalling that food in the Chernobyl region is still inedible – 35 years after the nuclear accident – the possibility that the high radiation from the nuclear power plant explosion could have long-term negative effects on Ukrainian agriculture,” he said in the note .
Base metals also rose further after the LMEX metals index, which tracks six major contracts, surged to record levels on Thursday. Soaring energy prices have pushed up costs, adding to that momentum. Aluminium, one of the most energy-consuming metals, rose 3.6% to a new record at $3,850 a tonne on the London Metal Exchange. Copper prices are also near record highs.
War and sweeping U.S. and European sanctions on Russia have upended Black Sea supplies at a time when global inventories of raw materials are already stretched. Russia is a major supplier of crude oil, natural gas, grains, fertilizers and metals such as aluminum, copper and nickel.
Rising commodity prices threaten to drag on growth and spark inflation, presenting a dilemma for central bankers around the world as they weigh the need to increase borrowing costs against the risk of hampering growth.
In other commodities, U.S. natural gas futures rose as much as 4.3%, rising for a third straight week, helped by European demand for U.S. LNG cargoes.
Iron ore futures in Singapore were set to gain 16% this week, their biggest gain in more than three months, on growing expectations of a pick-up in Chinese economic demand.
(with assistance from Serene Cheong, Winnie Zhu, Martin Ritchie and Ann Koh)