Commodities Climb to Six-Month High as Oil, Corn Rise on Ukraine

March 3, 2014 07:38 AM
Commodities Climb to Six-Month High as Oil, Corn Rise on Ukraine

Commodities advanced to the highest 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 Spot Index of 24 raw materials climbed as much as 2.1 percent to 663.48, the highest since Sept. 9, and was at 658.87 as of 2:05 p.m. in New York. Crude oil jumped as much as 2.6 percent, wheat surged 7 percent, while gold increased 2.5 percent. Corn and gasoline also rose.

"The uncertainty of how the Ukrainian issue will play out will continue to lift commodities across the board," Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $150 billion of assets, said in a telephone interview. "Ukraine being a major supplier of grain has cast some doubt in the global markets." Demand for haven assets such as gold "will continue until there’s a more diplomatic approach taken," he said.

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 was forecast to be the third-biggest corn exporter this year, after the U.S. and Brazil, and sixth-largest in wheat.

The GSCI measure of commodities has rallied 4.1 percent since the end of December, rebounding from a 2.2 percent drop last year.


Gas Prices


Earlier, natural-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 the Northeast will boost heating demand. Prices erased the gain, and fell as much as 2.3 percent. U.K. natural gas, which is not part of the commodities index, jumped the most since September 2011.

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, the company 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 crude oil advanced for a second session to $110.90 a barrel in London, while West Texas Intermediate crude climbed 1.7 percent in New York to $104.33. 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 futures jumped as much as 4.2 percent to $4.8275 a bushel in Chicago, the highest for a most-active contract since September. Wheat futures increased to the highest 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 Momentum


Gold futures reached $1,355 an ounce, the highest since Oct. 30, after rallies in January and February that were the first back-to-back monthly advances since August.

"The Russia/Ukraine political uncertainty produces a bid for gold," Walter "Bucky" Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama, said in an e-mail. "With gold breaking through resistance levels, it is now attracting momentum traders adding to positions as the trend moves higher."

The S&P GSCI rose 4.4 percent in February, 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 today in Chicago as a virus that kills piglets spread amid signs that U.S. pork output is declining.

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