The banking sector turmoil that has spilled into power and metallic markets is prone to be restricted in period with solely minimal harm to the broader economic system, in response to among the world’s largest commodity merchants.
Sebastian Barrack, head of commodities at Citadel, the world’s most profitable hedge fund that at occasions invests closely in power and agriculture markets, stated the affect was prone to be contained with fundamentals reasserting themselves as soon as the rapid panic handed.
“There may be emotion and worry, which may drive markets within the quick time period,” he stated on Monday on the sidelines of the FT Commodities World Summit.
“However this isn’t a repeat of the good monetary disaster of 2007-2008. We don’t imagine this can have a fabric affect on commodities demand like we noticed in these years.”
In 2008 oil costs crashed from virtually $150 to almost $30 a barrel in a matter of months because the deep recession attributable to the monetary disaster hammered demand. Metals and different commodities additionally fell sharply.
Commodity costs have been below strain within the final week as instability in corners of the worldwide banking system has sparked fears of additional contagion.
Brent crude oil, the worldwide benchmark, has fallen about 10 per cent within the final week, hitting a low of $70.12 a barrel on Monday morning shortly after UBS’s government-backed takeover of Credit score Suisse — the bottom worth degree since Russia’s full-scale invasion of Ukraine. European fuel costs additionally fell under €40 per megawatt hour for the primary time since 2021.
Trafigura, one of many world’s largest power and metals merchants, additionally stated that whereas nervousness may seep throughout markets within the quick time period, the corporate didn’t see a major threat of additional contagion, like in 2008.
“Well-known final phrases, however thus far it doesn’t really feel like we’re in that state of affairs,” Saad Rahim, chief economist at Trafigura, informed the convention.
Nevertheless, Guillaume de Dardel, head of power transition metals at Switzerland-based commodity dealer Mercuria, stated the monetary surroundings and excessive rates of interest may have a knock-on impact on power transition initiatives.
“The surroundings we’re in is popping in the direction of a extra risk-off kind of surroundings. Definitely on the financing aspect for initiatives, this can make it tougher, when it is extremely a lot required if we would like the transition to work.”
Barrack at Citadel stated he anticipated pure fuel costs to stay below strain, however with oil in all probability rising within the second half of the yr.
“European costs would have fallen under €40 per megawatt hour even with out the present state of affairs in markets — pure fuel is bearish, in each Europe and North America, as we’ve had a gentle winter and have an oversupply.
“The second half of this yr nonetheless suggests a considerably tightening [of the oil] market because the Opec+ [production] cuts feed by way of and demand continues to rise.”
Oil costs stabilised in a while Monday, with Brent buying and selling again practically $73 a barrel, with many merchants predicting the market was set to tighten as US shale progress slows and Chinese language demand picks up as its economic system reopens.
