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How The Ukraine Conflict Is Impacting Commodity Markets

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EDITOR'S NOTE: The Tech sector can stand aside as the commodity sector may be poised for a moment of economic reckoning. It appears as if there may be a new FAANG on the horizon. Rather than representing the first letters of the tech behemoths holding the weightiest market caps, this redefined acronym stands for Fuel, Agriculture, Aerospace, Nuclear (and renewables), and Gold. FAANG. It's a clever yet cringy hijacking of the index, but if we’re seeing the start of a new commodities supercycle, as certain analysts have been forecasting for over a year now, then you might want to push the original tech definition aside and pay close attention to what the new FAANG is doing. The Ukraine conflict may have thrust the commodity markets into mainstream view, but the underlying fundamentals have been beating, however low key, for quite some time.

Commodities are shoving aside technology, said Francisco Blanch, global commodities head at Bank of America.

Blanch's interview with Bloomberg was published early this week. He talked about how the pandemic and the Russia-Ukraine conflict was impacting commodity markets, mostly oil.

Blanch previously had oil hitting $120 a barrel before the conflict due to a post-Covid demand recovery. Russia is a major oil exporter.

"What the Ukraine crisis has done has lifted the entire expectation by $25 to $35 a barrel, so we have a $150 a barrel target for the summer," said Blanch, adding that the average for the year should be $110.

Blanch said oil prices could spike even higher depending upon how far Russian sanctions go, seeing $200 plus as his "ugly scenario." He notes that oil is the backbone of the economy, which is a major input for travel, industry and agriculture.

Blanch referenced the acronym "FANG" referring to technology stocks Meta (FB) (formerly Facebook), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOG). Technology stock performed strongly during the beginning of the pandemic, but commodities are now the focus.

"It's the new FANG: fuel, agriculture, aerospace, nuclear and renewables, gold and critical metals. All have come to the fore with this crisis."

Originally published on Kitco News.
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