Commodities Daily - February 22, 2022

> Oil rallies as tensions around Ukraine escalate. Today, investors will continue to eye developments around Ukraine and also focus on February US consumer confidence data, as well as preliminary February PMIs. We think Brent will register new YTD highs, possibly rising to a $98-99/bbl range as investors anticipate counter moves by the West.> Gold advances amid increased geopolitical tension. Gold rose from $1,900/oz to $1,905/oz yesterday, while EUR/USD slid from 1.136 to 1.131. Gold is trading near $1,910/oz as we write. Today will see the publication of the preliminary US PMIs and the Conference Board consumer confidence index, both for February. We expect bullion to test resistance at $1,915/oz today.> Base metals, coal await West's reaction to Russia-Ukraine escalation. Base metals traded mixed yesterday on geopolitics. Today, markets will be awaiting the West's reaction to yesterday's escalation between Russia and Ukraine. Because markets already fear a disruption in the supply of raw materials from Russia, the announcement of sanctions could give a boost to most metals.OIL RALLIES AS TENSIONS AROUND UKRAINE ESCALATEYesterday, after sliding $2.4/bbl to $92.6/bbl, Brent began to generate momentum, rallying to as high as $97.4/bbl overnight as tensions mounted between Russia and the West over Ukraine after Russian President Vladimir Putin recognized the independence of the so-called LPR and DPR and announced plans to send peacekeeping forces there. Front-month Brent yesterday finished the day at $95.39/bbl, fixing $1.85/bbl above the previous settlement. This morning, Brent peaked at almost $97.7/bbl before retreating below $97/bbl. Investors are now eyeing the Western response and are fearing disruptions to the nearly 3 mln bpd of Russian oil exports to Europe. In our view, only a very serious escalation would result in any sort of disruption to Russian exports. We would expect any disruptions to be temporary and not lead to any permanent supply losses.On Tuesday, both chambers of the Russian parliament (the Federation Council and the Duma) will convene to discuss the crisis and ratify cooperation and friendship treaties with the DNR and LNR. There may also be further discussion of and details on Russia's provision of military and economic aid, including peacekeepers. Note that US Secretary of State Antony Blinken will meet Russian Foreign Minister Sergei Lavrov for talks on Thursday, but the prospects for this meeting look bleak unless creative solutions can be found for Russia's demands, in our view. Today, investors will continue to eye developments around Ukraine and also focus on February US consumer confidence data, as well as preliminary February PMIs. We think Brent will register new YTD highs, possibly rising to a $98-99/bbl range as investors anticipate counter moves by the LD ADVANCES AMID INCREASED GEOPOLITICAL TENSIONGold climbed from $1,900/oz to $1,905/oz yesterday, while EUR/USD slid from 1.136 to 1.131. The US celebrated Presidents' Day and its financial markets were closed, so 10y Treasury yields stayed at 1.92%. The geopolitical situation remains the main focus for investors, which is supporting gold's safe-haven appeal. Russian President Vladimir Putin recognized the independence of the two breakaway regions in eastern Ukraine and said Russia is planning to send peacekeepers to the region, increasing the uncertainty around the situation. Meanwhile, expectations of Fed monetary policy tightening remain the main negative factor for bullion as they have been pushing 10y yields higher. Fed Governor Michelle Bowman said yesterday that a 50 bp hike could be appropriate if upcoming inflation data warrants such a move. Gold is trading near $1,910/oz as we write. The main data releases today are the preliminary US PMIs and the Conference Board consumer confidence index, both for February. The Richmond Fed manufacturing index for February and the US house price index for December are also due today. Market activity was limited yesterday, so we anticipate gold to start to price in the day's geopolitical events during the US trading session. Planned closed discussions in the Russian Duma and Federation Council could provide further uncertainty today. Fundamentally, an improvement in the US data after a slide in January could provide some headwinds for gold, but a worsening geopolitical situation would likely outweigh that. We expect bullion to test resistance at $1,915/oz SE METALS, COAL AWAIT WEST'S REACTION TO RUSSIA-UKRAINE ESCALATIONBase metals traded mixed yesterday. The 3m LME contract for copper was down 0.58% (-$58/tonne from the previous day's close) at $9,898/tonne, aluminum advanced 0.52% (+$17/tonne) to $3,280/tonne, nickel added 0.85% (+$205/tonne) to settle at $24,349/tonne and zinc was down 0.49% (-$18/tonne) to $3,558/tonne.Geopolitics remained the key issue in markets, particularly in light of the escalation at the end of the day. So far today, metals are in the black in Asia. Aluminum and nickel are rising the most since these two metals are highly sensitive to sanctions-related news, given that Russia is an important producer of both metals. The Russia-Ukraine situation will dominate the agenda today, and the West's reaction will be in focus. We expect aluminum to outperform the rest of the pack today, with nickel also moving higher. Copper's reaction to comments from the West might be ambivalent, since the red metal always tracks the health of the global economy and reacts negatively to potential threats to global economic growth (any sanctions on Russian commodity producers would represent a threat to global growth).Geopolitics is also driving the agenda elsewhere. While iron ore continues to be dominated by specific factors, such as post-Olympic demand and the Chinese authorities' tightening grip over speculation, the thermal coal market seems to have obtained some correlation with base metals. Since Russia is also a major exporter of coal, potential sanctions on companies in the sector would have a significant impact on global coal supply, which is currently is in an already significant deficit. We expect thermal coal contracts to react positively to today's rhetoric from the