Commodities Daily - February 28, 2022

> Oil prices rise on global retaliation to Ukraine events. Today, in our view the April Brent contract is most likely to expire in the $100-102/bbl range, with investors eying developments in Ukraine and especially the results of talks between Ukrainian and Russian negotiators on the Belarusian border. The monthly EIA 914 crude oil production report with December data will also be digested today. > Gold took a step back on strong US data. Gold slid from $1,910/oz to $1,890/oz on Friday, while the 10y US Treasury yield finished virtually flat at 1.96%. Gold is trading near $1,910/oz as we write. Markets await US wholesale inventories for January. We expect bullion to trade in a $1,900-1,930/oz corridor today.> Metals to rally on geopolitical escalation. Base metals traded lower on Friday but are set to rally today given the recent geopolitical escalation. Aluminum and nickel are likely to remain the main outperformers given Russia's significant share in global supply. Thermal coal is also benefiting from the escalation, since Russia is the world's third largest exporter.OIL PRICES RISE ON GLOBAL RETALIATION TO UKRAINE EVENTSOn Friday, after hovering below $102/bbl at the start of the day, front-month Brent began to ease toward $96/bbl before starting to consolidate near $98/bbl by the end of the day. It eventually settled at $97.93/bbl, fixing $1.15/bbl below the previous settlement. Note that the currently expiring Brent April contract is trading at a massive premium ($3.00-4.30/bbl) to the May contract (which will become the front-month tomorrow) as Brent remains in a bullish backwardation structure, which highlights investor nervousness over the tightness of supplies. Note that the IEA, which oversees deployment of emergency oil stockpiles among consuming nations, pledged on Friday to help ensure global energy security amid the conflict in Ukraine and discussed potential courses of action. This morning, the expiring Brent contract for April spiked to as high as $105/bbl at the open before easing closer to $102/bbl, while the more actively traded May contract eased below $100/bbl. Oil prices remain elevated as investors fear that new Western retaliatory measures against Russia, including cutting some Russian banks off from SWIFT, could result in a disruption of oil supplies as buyers and sellers try to figure out how to navigate the new rules. Nevertheless, global governments so far remain reluctant to target Russian energy, seeking to insulate the still-fragile world economy from a greater shock. Such a shock would be represented by a stagflationary mix of faster inflation and slower growth.Today, in our view the April Brent contract is most likely to expire in the $100-102/bbl range, with investors eyeing developments in Ukraine and especially the results of talks between Ukrainian and Russian negotiators on the Belarusian border. The monthly EIA 914 crude oil production report with December data will also be digested today. The US production growth profile is in focus, and we think the forecast could surprise to the upside amid high prices. As for the rest of this week, the focus will be on a set of OPEC+ meetings, with the Joint Technical Committee to meet tomorrow and the main meeting on Wednesday. Despite the Ukraine situation, the group will probably stick to its plan of gradually increasing oil production and will also have to take into account the halt of some Iraqi output (oil production from the West Qurna-2 field in Southern Iraq has been suspended for three weeks for an upgrade that will increase its output capacity by 0.05 mln bpd). This week, the Biden administration may announce a strategic stockpile release onto the commercial market, while the Iranian nuclear talks look to be nearing a LD TOOK A STEP BACK ON STRONG US DATAGold slid from $1,910/oz to $1,890/oz on Friday, while the 10y US Treasury yield finished virtually flat at 1.96%. Meanwhile, EUR/USD rose from 1.119 to 1.127. Geopolitical risks remain elevated and the safe-haven appeal of gold remains in place. A fresh portion of strong data from the US slightly overshadowed other risks. The January PCE deflator, a key measure of inflation for the Fed, was mostly in line with expectations, with 0.6% m-o-m and 6.1% y-o-y growth. Leading the price gains were energy and food prices. Consumer spending growth was also upbeat, signaling that Americans continue to spend despite the higher prices. Meanwhile, consumer income statistics for the last month were unchanged, whereas the consensus had expected a decline. Overall, the positive prints for the University of Michigan consumer sentiment and durable goods orders point to the fact that the American economy is in good shape. For the Fed this may be a signal to take a bigger step to fight inflation. St Louis Fed President James Bullard reiterated his view on the desirability of a 1 pp rate increase by July, despite the geopolitical risks. The semiannual report to Congress, which was published ahead of Powell`s testimony in the US Congress on Wednesday, showed that the Fed was ready to liftoff in March.During Asian trading session today gold is near $1,910/oz amid geopolitical developments over the weekend and the news that Russia's central bank will start boosting gold reserves. Today, markets await US wholesale inventories for January, Chicago PMI and the Dallas Fed manufacturing activity index, both for February. The prospects for talks between Russia and Ukraine in Belarus will be the main driver for bullion today. However, US macroeconomic developments may not provide a clear target as the consensus is mixed. Overall, we expect bullion to trade in a $1,900-1,930/oz corridor TALS TO RALLY ON GEOPOLITICAL ESCALATIONBase metals mostly closed in the red on Friday, with copper an exception. The 3m LME contract for copper was almost flat at $9,873/tonne, while aluminum dropped 1.09% (-$37/tonne from the previous day's close) to $3,358/tonne, nickel slid 1.44% (-$355/tonne) to settle at $24,361/tonne and zinc fell 0.54% (-$19/tonne) to $3,622/tonne.Base metals moved back from their recent highs reached at the peak of the geopolitical escalation last week. Today, we expect prices to rebound in the wake of the re-escalation over the weekend, with aluminum and nickel likely to remain strong outperformers. Russia accounts for a larger share of the global supply of these two metals (6% and 7%) than the rest of them. According to Bloomberg, LME aluminum contracts are now quoted close to $3,500/tonne. We believe the price might head toward $4,000/tonne in a worst-case scenario. On the other hand, we believe copper would continue to react ambivalently to further escalation. While a potential disruption in the supply of copper from Russia (4% of the global supply of both refined copper and copper concentrate) would put upward pressure on quotes, the downgrades to global economic outlooks would pull prices in the opposite direction given copper's role as the global economic barometer. Thermal coal is in much the same situation as base metals, as Russia also accounts for a sizable share of global supply (Russia is third in global thermal coal exports after Indonesia and Australian with a 19% share). We believe thermal coal prices will continue to rise today amid the geopolitical