Commodities soar as war increases anxiety over supply shortages

Commodities extended their massive rally as Russia's invasion of Ukraine continues to roil global markets and fuel fears of supply crunches. 

Prices from crude to aluminum and wheat soared, as raw materials stage their most stunning weekly surge since 1974 and the days of the oil crisis. 

Russia's growing isolation is choking a major source of energy, metals and crops, sparking fears of prolonged shortages and sharper global inflation. Traders, banks and shipowners are increasingly avoiding business with Russia because of the difficulty in securing payments, while shipping lines are canceling or not taking bookings from the region.

Tensions rose early Friday after Russia attacked a Ukrainian nuclear plant, the biggest in Europe, according to Ukrainian officials. The fire at the Zaporizhzhia facility in eastern Ukraine is contained, local emergency services said. 

West Texas Intermediate oil jumped almost 5% before paring gains as traders assessed the severity of the nuclear plant attack. Prices are still up 20% this week as global buyers are shunning Russian crude and fuels, sparking a race for alternative supplies.

The International Energy Agency warned that global energy security is under threat, and a planned release of emergency oil reserves by the US and other major economies has failed to quell supply concerns. JPMorgan Chase & Co. said global benchmark Brent crude could end the year at $185 a barrel if Russian supply continues to be disrupted. Prices were at about $112 on Friday.

Wheat soared to the highest level since 2008 on deepening fears of a global shortage as the Ukraine war cuts off about a quarter of the world's exports of the staple used in everything from bread to cookies and noodles. Futures jumped by the exchange limit in Chicago, rising 6.6% to $12.09 a bushel.

Base metals also rallied further after the LMEX Metals Index, which tracks six major contracts, surged to a record on Thursday. Soaring energy prices have added to the momentum by pushing up costs. Aluminum, one of the most energy-thirsty metals, rose as much as 3.6% to $3,850 a ton on the London Metal Exchange, a fresh record. Copper is also closing in on its all-time high.

The war and the implications of sweeping US and European sanctions on Russia have upended Black Sea supplies at a time when global stockpiles of raw materials are already tight. Russia is a major supplier of crude, natural gas, grains, fertilizers and metals such as aluminum, copper and nickel.

Higher commodity prices have the potential to be a drag on growth and stoke inflation, creating a dilemma for central bankers worldwide as they weigh the need to increase borrowing costs against the risk of stunting economic growth. 

In other commodities, US gas futures rose as much as 4.3% to head for a third weekly increase, bolstered by European demand for American cargoes of liquefied natural gas. 

Iron ore futures in Singapore are set for a 15% gain this week, the biggest in more than three months, amid growing expectations of a pickup in demand from China's economy.

— With assistance by Serene Cheong, Winnie Zhu, Martin Ritchie, Ann Koh, Ranjeetha Pakiam, and Jake Lloyd-Smith

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement