Prices to stay higher for longer

We have raised most of our commodity price forecasts this week to account for Russia’s invasion of Ukraine and the heightened risk of disruption to commodity supply. Given that Russia is a leading exporter of many commodities, prices will stay high so long as tensions remain elevated. However, prices could rise even further than we assume if the risks to commodity supply materialise. The biggest risk is that the West throws economic caution to the wind and sanctions Russian commodity exports, or that Russia retaliates against the West and limits its exports. In the case of grains, our revisions incorporate some of the damage probably already done to Ukraine’s grain crops. Turning to next week, prices will continue to be driven by the situation in Ukraine and the related tensions between Russia and the West. Elsewhere, OPEC+ will meet next Wednesday to agree on its oil production target for April. We think the group will aim to raise production by 400,000 bpd again, in line with its plan to unwind all remaining production cuts by the end of the year. With media reports suggesting that a new Iran nuclear deal is possibly just days away from being announced, we don’t think the group will raise production any faster whilst that uncertainty lingers. If a deal is announced, we think Iran could feasibly raise production by 1m bpd within months of sanctions being lifted.