Commodities Daily - March 9, 2022

> Oil prices keep surging amid growing fears of big supply shortage. Yesterday, Brent rallied from $123.3/bbl to as high as $133.1/bbl as the US announced a ban on Russian crude oil, refined products and natural gas, while the UK said it would phase out all imports of Russian crude oil and refined products. As things stand at the moment, the US and UK remain the only two countries to impose an outright ban. Today, investors will eye the EIA weekly inventory report after overnight the API showed a mixed picture for crude and refined products. We see Brent continuing to consolidate around $130/bbl today.> Gold rockets amid flight to safety, concerns over inflation and global growth. Gold rallied from $1,935/oz to $2,050/oz from Friday through yesterday (Russia was on holiday), while the 10y US Treasury yield was virtually flat at 1.84% over that time frame. During the Asian trading session today, it is still quoted at $2,050/oz. Markets await US JOLTS job openings for January. We think that the potential for further price growth for gold could be exhausted, though prices should stay near current levels. We see gold trading in a $2,040-2,060/oz corridor today.> Base metals mixed so far this week; nickel at all-time highs; thermal coal back on the rise. Base metals have had a mixed start to the week. Copper and aluminum retreated from their Monday highs yesterday, while an unprecedented surge sent nickel to as high as $100,000/tonne early in yesterday's session. Trading in nickel is currently suspended across the world. Meanwhile, thermal coal is back on the rise amid the disruption in fuel imports from Russia.OIL PRICES KEEP SURGING AMID GROWING FEARS OF BIG SUPPLY SHORTAGEYesterday, Brent rallied from $123.3/bbl to as high as $133.1/bbl as the US announced a ban on Russian crude oil, refined products and natural gas, while the UK said it would phase out all imports of Russian crude oil and refined products (while continuing to allow natural gas imports). Note that in 2020-21, the US on average imported 0.6 mln bpd of crude oil and products combined, with crude oil accounting for 0.137 mln bpd of the total. According to the US Treasury's OFAC, US buyers of Russian crude oil and oil products and coal have until April 22 to wind down imports. Russia is an important source of refinery feedstock for US refiners. Last year, the US imported around 0.345 mln bpd of straight-run residuals and VGO from Russia. That volume will not be easy to replace and could hinder gasoline and diesel production in the near term.The UK imports over 0.12 mln bpd of Russian refined products, with a third of UK diesel imports coming from Russia. It imports almost 0.1 mln bpd of crude oil as well. As things stand at the moment, these volumes should find markets elsewhere, as the US and UK remain the only two countries to impose an outright ban. Meanwhile, EU members are divided on the issue, with some, such as Poland and Lithuania, arguing for a ban and others, including Germany, rejecting such an option given Europe's dependence on Russian supplies. A compromise commitment to phase out Russian energy imports is reportedly being prepared for the EU leaders' summit that starts tomorrow. Today, investors will eye the EIA weekly inventory report after overnight the API showed a mixed picture for crude and refined products. We see Brent continuing to consolidate around $130/bbl LD ROCKETS AMID FLIGHT TO SAFETY, CONCERNS OVER INFLATION AND GLOBAL GROWTHGold rallied from $1,935/oz to $2,050/oz from Friday through yesterday (Russia was on holiday), while the 10y US Treasury yield was virtually flat at 1.84% over that time frame. Meanwhile, EUR/USD depreciated from 1.107 to 1.092. The conflict in Ukraine was the main driver for bullion as the geopolitical uncertainty drove a flight to safety. Investors were also worried that the US ban on Russian energy imports could affect global growth and the recovery, raising prices for commodities on supply woes (the Bloomberg commodity index is up 6.5% since Friday morning) and stoking inflation. On the fundamentals side for gold, the US February jobs report on Friday showed an unexpectedly big NFP increase at 678k, though wage growth remained flat. The pace of the labor market recovery creates space for hawkish Fed actions. Chicago Fed President Charles Evans said that the Fed needs to hike rates by 25 bps at each meeting until the end of the year - in his view, rates would then be at a neutral level for the US economy (meaning a level at which the economy neither speeds up nor slows down).During the Asian trading session today, gold is still quoted at $2,050/oz. Markets await US JOLTS job openings for January. Tomorrow, the focus will be a US CPI reading for February and an ECB rate decision, while Friday will see the preliminary Michigan consumer sentiment index for March. Meanwhile, the geopolitical news will likely drive investor sentiment and demand for safe-haven assets. We think that the potential for further price growth for gold could be exhausted, though prices should stay near current levels. We see gold trading in a $2,040-2,060/oz corridor SE METALS MIXED SO FAR THIS WEEK; NICKEL AT ALL-TIME HIGHS; THERMAL COAL BACK ON THE RISEBase metals have traded mixed so far this week. The 3m LME contract for copper has fallen 4.36% (-$555/tonne from last Friday) to $10,209/tonne and aluminum has dropped 9.12% (-$351/tonne) to $3,498/tonne, while nickel has surged 175% (+$51,926/tonne) to $81,051/tonne and zinc has climbed 2.09% (+$85/tonne) to $4,136/tonne.Most base metals are currently off from their recent highs. The 3m LME aluminum contract reached as high as $4,074/tonne and copper moved beyond its May 2021 high of $10,748/tonne to reach $10,845/tonne on Monday, but they fell a respective 14% and 6% from these levels yesterday. Nickel is the key exception. It soared as much as 250% from its March 4 close to an unprecedented level of $100,000/tonne in the morning trading session yesterday. The surge came as a result of a squeeze that forced Chinese nickel giant Tsingshan Holding Group Co. to liquidate short positions. The price spike forced the LME to suspend trading in nickel, while prices in Shanghai hit their daily upward limit (no transactions were allowed to go through at levels below the limit). Hence, nickel is not being traded anywhere in the world at the moment. The LME said that it would restrict trading in nickel after it restarts, with daily moves capped at 10%. We believe that this will slow the surge in nickel prices, but we do not see prices moving much below current levels anytime soon.Meanwhile, the disruption in the flow of natural resources from Russia has resulted in a spectacular surge in thermal coal prices as well, with Newcastle FOB Australia now hovering around its recent high of almost $400/tonne. The situation was only exacerbated by the US embargo on Russian fuels announced yesterday. Although the EU has refused to follow in the footsteps of the US, since Russia provides around 50% of the coal consumed in the region, talk of official and unofficial bans has driven prices higher for a wide range of commodities including coal (also gas and wheat among others). With few suitable replacements for Russian coal, we expect thermal coal prices to surge to new unprecedented levels if imports from Russia are further