Abundant Supply Buffers Commodity Prices against Crimea Conflict[/caption]Record world grain production, new Europe’s natural gas reserves and threat of mutual economic decline from oil sanctions are buffering commodity prices despite the Ukraine-Russia conflict causing the price of gold to rally.
While Britain’s gas prices, a key benchmark in Europe, grew 5.1 percent since the onset of the crisis in February, they are currently at their lowest level since 2010.Brent crude plunged 0.5 percent; wheat and corn surged 14 percent and 4.9 percent respectively, which is at least 26 percent lower than their highs in 2010, when both Ukraine and Russia halted shipments. Gold hit its highest point in six months as investors sought refuge in the metal.
Ample production has mitigated price swings in some areas caused by the Russian invasion of Crimea, where most people voted on a March 16 referendum to join Russia. Russia supplies a third of gas consumed in Europe, half of which passes through Ukraine, so do about the same amount of crude.
The Russian economy is facing is third consecutive slowdown, making it reliant on export revenues. Possible European sanctions on Russia touch on visa bans and asset freezes, instead of energy.
“This is basically a hydrocarbon version of Mutually Assured Destruction,” said Seth Kleinman, a London-based energy research chief at Citigroup Inc. “Europe needs Russian energy, and Russia needs Europe’s money.”
On March 14, wheat futures closed at $6.8725 a bushel on the Chicago Board of Trade (CBOT). While this is an increase from February 28 figure of $6.0225, prices surged to a high of $8.68 in 2010 when Ukraine and Russia reduced deliveries due to droughts. Corn futures closed the week at $4.86 on CBOT, up from $4.635 at the end of February, which is less than $6.30 in 2010.
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