Russia-Ukraine Conflict: Will commodity price rally sustain this week?

As the world saw one of the worst conflicts unfold in Eastern Europe last week, investors turned to commodity markets to hedge against the growing uncertainty.
Moscow’s invasion against neighboring Ukraine stunned the markets, with investors selling first and asking questions later.
 
While equities crumbled, Crude oil futures topped $100 a barrel-mark and Gold Spot prices breached $1,900 per ounce last Thursday. Aluminium prices, too, reached all-time highs, while nickel prices are approaching decadal highs.
 
Analysts say this could be just the start of a rally in oil prices and investors and companies should brace for higher commodity prices over the next few weeks.
According to Vandana Hari, founder, Vanda Insights, “The worst-case scenario is unfolding. Crude’s rally may have only just begun as the full impact on global oil and gas supplies is yet to be seen and factored in. The door to a diplomatic de-escalation is not firmly shut, but it will take some major efforts to kick it open again. Should the Kremlin decide to cut-off gas exports to Europe, all the world’s gas producers put together do not have the spare capacity to plug the gap”

To put things in perspective Russia exports about 5 million barrels per day of crude oil, more than half of which goes to Europe and 42% to Asia.

As regards natural gas, Russia has the largest reserves of natural gas in the world but is the second-largest annual producer of natural gas after the US.

Given all this, the current geo-political tensions in Eastern Europe may drive commodity prices further up in near future, flaring inflationary pressure. If the stand-off between the two countries defuses and the sanctions stay limited, the economic impact may be limited.

Inflationary pressure underpinning gold prices.
 
For Silver, Sugandha expects the metal to find support at Rs 62,500 and resistance at Rs 69,500.

Coming to equities, the holiday-truncated week may remain volatile with global factors acting as the key market triggers.
Domestically, auto sales data, services and manufacturing PMI data, quarterly GDP print and Sebi’s new T+1 settlement cycle may also affect trading sentiment.
 

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