Russia-Ukraine Conflict Threatens Supply Disruptions... Natural Gas and Wheat Prices Soar

Natural Gas Surges to 194 Euros... Oil Prices Exceed $110 per Barrel
Coal Hits Highest Level Since 2008... Wheat Up 30% This Year, Grain Prices Also Soar

[Asia Economy Reporters Byunghee Park, Hyunwoo Lee] As armed conflict continues in Ukraine, prices of raw materials such as crude oil, natural gas, and grains are soaring. With economic sanctions against Russia by the West, including the United States and Europe, intensifying, Russia is strengthening its offensive on strategic key locations along the Black Sea coast, raising concerns about the global supply chain.

◆Soaring Raw Material Prices= According to Bloomberg on the 2nd (local time), the natural gas futures price at the Netherlands TTF exchange, the benchmark for European natural gas prices, surged by up to 60% intraday, reaching 194 euros per megawatt-hour (MWh). This is an all-time intraday high. The closing price rose 43% to 174 euros per MWh.

Oil prices also surged. On the New York Mercantile Exchange (NYMEX), April delivery West Texas Intermediate (WTI) crude oil closed at $110.60 per barrel, up $7.19 (7%) from the previous day, marking the highest level since May 2011. Intraday, it rose as high as $112.51. Brent crude futures on the London ICE Futures Exchange closed at $112.93, up $7.96 (7.6%) from the previous trading day, reaching an intraday high of $113.94. The Organization of the Petroleum Exporting Countries (OPEC) plus Russia and other non-OPEC major oil producers, known as 'OPEC Plus (OPEC+),' maintained their policy at the regular meeting to increase daily production by 400,000 barrels per month. After drastically cutting daily production by 5.8 million barrels in March 2020 due to the COVID-19 pandemic, OPEC+ decided in the July meeting last year to gradually restore production to pre-pandemic levels by increasing output by 400,000 barrels per day each month. Despite soaring global inflation and the Ukraine crisis, the U.S. and others have urged OPEC+ to increase production more rapidly, but OPEC+ is sticking to its gradual expansion policy.

Coal prices are also surging. On the 2nd, coal futures prices for shipment from Newcastle, Australia, reached $446 per ton, the highest since 2008. It rose $140.55 in a single day. Newcastle coal futures closed last week at $220.95 per ton and doubled within four trading days this week. This is attributed to expectations that coal demand will increase as an alternative energy source amid the simultaneous surge in oil and gas prices.

Grain prices are also soaring. Russia and Ukraine account for 29% of the world's wheat supply and 19% of corn supply. Wheat futures prices on the Chicago Board of Trade (CBOT) rose 7.6% to $10.59 per bushel, the highest since 2008. Bloomberg explained that wheat futures prices hit the daily limit for three consecutive trading days for the first time since 2008. Wheat prices have risen more than 30% this year alone. Corn futures prices also reached $7.4775 per bushel, the highest since 2012.

◆SWIFT to Block Russian Banks from the 12th= The European Union (EU) has decided to expel seven Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) starting on the 12th. However, two major banks, Sberbank and Gazprombank, Russia's largest banks, were excluded from the sanctions list to facilitate payments for crude oil and gas. The EU still considers Russian crude oil and gas necessary.

With Russian banks excluded from SWIFT, insurers are refusing to provide 'Cargo Insurance' coverage for major cargo damage on trade ships bound for Russia. As a result, shipping companies are finding it practically impossible to transport goods to major Russian ports and the Black Sea region.

Europe imports 40% of its natural gas consumption from Russia. Nihon Keizai estimates that even if Russian crude oil imports are halted and supplies are maximized from North America and Africa, Europe's gas supply would still fall short of demand by about 10%.

The United States announced on the same day restrictions on exports of crude oil and gas extraction equipment to Russian refineries. While limiting equipment exports, it has so far refrained from directly restricting crude oil and gas exports. White House Press Secretary Jen Psaki said in an interview with CNN that regarding sanctions on Russian crude oil exports, "President Joe Biden is concerned about the impact of rising energy and gas prices on American consumers." However, Psaki added, "It is still under consideration." Regardless of President Biden's stance, Democratic Senator Ed Markey introduced a bill to ban imports of Russian crude oil and petroleum products on the same day.

◆Prolonged Disruption of Black Sea Shipping Routes Expected= Meanwhile, Russia's occupation of Kherson, a major Black Sea port city in Ukraine, has further heightened concerns about raw material supply instability. Even if the war between Russia and Ukraine ends, it is expected to take a long time for the functions of major Black Sea port cities to recover. Nihon Keizai cited a Ukrainian exporter saying, "Ukraine has laid anti-tank mines around major ports to prevent Russian military incursions," adding, "Even after the situation is resolved, it will take at least 2 to 4 months for exports to properly resume."

This content was produced with the assistance of AI translation services.