(Bloomberg) – Commodities advanced to the highest level in almost six months as escalating tension in Ukraine fueled concern that energy and agricultural supplies will be disrupted while increasing demand for gold as a haven.
The Standard & Poor’s GSCI Index (SPGSCI) of 24 raw materials climbed as much as 2 percent to 662.64, the highest level since Sept. 9 and was at 662.11 as of 12:35 p.m. in London. Brent crude in London jumped 2.7 percent, wheat in Chicago surged 5 percent, while gold futures in New York increased 1.4 percent. Natural gas and corn also advanced.
“Commodity prices are shooting higher on the back of tensions in Ukraine, which is the bread-basket of Europe,” Michael Hewson, market analyst at CMC Markets Plc in London, said by phone. “People are looking to build inventories ahead of any potential supply disruptions.”
Russia, the world’s largest energy exporter, seized control of the Black Sea region of Crimea in Ukraine, where tension has escalated since Russia-backed Viktor Yanukovych was overthrown as president on Feb. 22. More than half of Russia’s gas exports to the European Union are shipped through Ukraine, which is set to be the third-biggest corn shipper after the U.S. and Brazil and the sixth-largest wheat exporter this year.
The measure of commodities extended its increase since the end of December to 4.8 percent, rebounding from a 2.2 percent drop last year.
Gas Prices
Gas futures jumped as much as 2.8 percent in New York as Ukraine mobilized army reserves and amid speculation that a winter storm moving from the U.S. Midwest to Northeast will boost heating demand. U.K. natural gas, which is not part of the commodities index, jumped the most since October 2011.
Gas for next-month delivery rose 7.5 percent to 60.35 pence a therm ($10.09 a million British thermal units), the biggest gain since Oct. 31, 2011, on ICE Futures Europe exchange in London. That’s the highest price since Feb. 13.
Russia, which provided 30 percent of Europe’s natural gas last year, sends half of its supplies via Ukraine. So far, Russian gas shipments to Ukraine and the rest of Europe haven’t been disrupted during the crisis.
About 313,000 barrels of crude a day transited via Ukraine in 2013, according to the country’s Energy Ministry. The southern branch of the Druzhba pipeline, which transports about 1.2 million barrels of Russian oil to Europe, passes through Ukraine on its way to refineries in Hungary, Slovakia and the Czech Republic.
Export Monopoly
OAO Gazprom, Russia’s gas-export monopoly, may end last year’s agreement to supply Ukraine at a cheaper rate unless it’s paid $1.55 billion owed for fuel, it said March 1. It’s the first time since the overthrow of Yanukovych that Russia has directly used its position as Ukraine’s dominant energy supplier to pressure the new regime.
Wholesale gas in Europe surged in January 2009 after Russia halted pipeline deliveries amid a dispute over prices and transit terms.
Brent advanced for a second day to $111.94 a barrel and West Texas Intermediate crude climbed 2 percent in New York. Crimea, home to Russia’s largest overseas naval base, belonged to Russia until Nikita Khrushchev gave it to Ukraine in 1954.
“If the situation is not defused, it has the potential to spark wider economic turmoil through higher oil and gas prices, trade sanctions and a general ratcheting up of global tensions that could endanger the fragile global economic recovery,” Edward Meir, an analyst at INTL FCStone Inc. in New York, wrote in a note today.
Wheat Exports
Corn jumped as much as 4.2 percent to $4.8275 a bushel in Chicago, the highest price for a most-active contract since September. Wheat increased to the highest level since December.
Ukraine will probably export 9.5 million metric tons of wheat this season from 7.1 million tons in 2012-13, according to the International Grains Council. It was the fourth-largest corn exporter in 2012-13, IGC data show. The country may leapfrog Argentina this year, shipping 18.3 million tons through June from 13.6 million tons a year earlier, according to the IGC.
U.S. Secretary of State John Kerry is traveling to Ukraine today as western leaders seek to respond to the movement of troops into Crimea, where a majority of residents speak Russian. EU foreign ministers will hold an emergency meeting today, while the U.S. warned of possible sanctions against Russia and the Group of Seven nations said it was suspending its participation in planning for the Group of Eight summit in Russia in June.
Gold rose as much as 1.8 percent to $1,350.29 an ounce, the highest since Oct. 30. Prices extended the first back-to-back monthly advance since August.
“Geopolitical risk out of Ukraine is giving gold a safe-haven bid,” Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group, said from Singapore. “It remains to be seen if it will be sustained.”
The S&P GSCI rose 4.4 percent in February in the biggest monthly gain since July, led by a rally in coffee following a drought in Brazil, the biggest grower of the bean. Hog futures, the second-biggest gainer on the gauge in 2014, rose to a record on Feb. 28 as a virus that kills piglets spread amid signs that U.S. pork output is declining.
