What Rising Geopolitical Risks Mean for Commodities

24/02/2022

Greg Sharenow

The escalation between Russia, Ukraine and the West has implications not just for energy, but for other commodities as well. Get our point of view on the fluid situation with Greg Sharenow, Head of Commodities, in this View From the Trade Floor.

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Text on screen: View From the Trade Floor: What Rising Geopolitical Risks Mean for Commodities

Text on screen: Greg Sharenow, Head of Commodities

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The escalation between Russia, Ukraine, NATO, and the West over the past few months has been an incredibly important component to the narrative of commodity markets largely driven by the fact that Russia is an incredibly important exporter of many commodities, not just energy. While oil implications in my mind are small because Russia exports only 350,000 barrels per day currently through the Ukraine and could reroute much of that oil, the implications for natural gas is much more important for Europe, given the dependency of Europe on natural gas supplies.

About 25-30% of European supplies are Russia-sourced. And 10% flow through the Ukraine. Should any kinetic activity lead to a disruption of the supply, that would have meaningful implications for European natural gas prices, which would have secondary implications for power, coal, and even oil and other commodities where the rise in prices for natural gas would lead to the increased costs of the production of other commodities.

Given how tight many of these commodity markets globally would have, a small loss in export volume could have a meaningful implication for prices.

What does this mean? Investors need to be cognizant of the risks that their portfolios have to any potential shocks from geopolitics. This is where commodities play an incredibly important role in portfolio construction and portfolio diversification.

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Disclosure

Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be appropriate for all investors.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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