Still a bumpy road ahead for commodity prices

The seemingly unstoppable rise in commodity prices gave way to sharp corrections this week, though the big picture is that prices remain extremely elevated. We suspect commodity prices will continue to whipsaw around in the weeks ahead, as markets move quickly to discount the war in Ukraine and its consequences into commodity prices. On balance, though, the risks to prices are still very much skewed to the upside, not least as the West could further tighten restrictions on Russia’s commodity exports. In fact, in a scenario where there is a complete ban by the West on imports of Russian energy, we think the price of crude oil (Brent) could quickly reach $160 per barrel (from a little over $110 currently). Events surrounding the war in Ukraine will continue to drive commodity prices next week. We will also be keeping a close eye on the January and February activity data out of China, which will be released on Tuesday. We think these data will come in weaker than the consensus expects, which would support our view that China’s demand for commodities is set to remain soft this year.