If energy prices stay high will that put the world into a recession?
In this week’s video insight David discusses the highest commodity prices we have seen in more than seven years and how much of an impact this will have on inflation in the near-term. With Russia supplying large amounts of oil, gas and coal to Europe and the rest of the world, several countries are in a vulnerable position. Can these commodities be replaced?
Hi, I’m David Buckland and welcome to this week’s video insight.
Commodity prices have soared to highest levels since 2008 due to the fear of supply from Russia and Ukraine. Russia plays a large role in commodity supply to Europe and the rest of the world, which is why Western Governments have not hit Putin with any measures around the bans of commodities.
Russia supplies 20 per cent of Europe’s oil, 40 per cent of its gas and 20 per cent of its coal. And Germany gets 50 per cent of its gas from Russia, while, in conjunction with Ukraine, Russia supplies 27 per cent of the world’s wheat, 15 per cent of the world’s corn and 8 per cent of the world’s aluminium.
Several countries are in a vulnerable position in terms of accessing commodities, particularly energy – including oil, gas and coal. Take for example the issue with moving Russian oil around, it is reported that the number of ships booked to load cargo in March is less than a quarter of the prior month. Hence the current US$130/ barrel oil price, up 75 per cent from US$74/ barrel at the beginning of 2022.
Can we replace these commodities? Solving this problem is tough and involves increasing producing elsewhere or increasing renewables and nuclear – a very long-term proposition. In Europe, only France, which meets 75 per cent of its energy needs through nuclear power, and the heavily renewable Scandinavian countries, are significantly less vulnerable to threats from Russia.
As the world is already dealing with supply chain shortages and rising material prices due to COVID-19, the war in Ukraine is putting further pressure on manufacturers and consumers. And these rising commodity prices are adding to inflation and the cost of living. It’s certainly one current issue investors should be wary of.
That’s all for this week, thanks for watching and please continue to follow us on Facebook and Twitter.