There is a clear risk of a rise in oil prices as one of the outcomes of the Russian invasion of Ukraine. Top commodities strategist Jeffrey Currie of Goldman Sachs cautioned in a research note: “In our view, until the uncertainty around the rapidly escalating situation is resolved, commodity price risk remains skewed to the upside, with further escalation likely to send European natural gas, wheat, corn and oil prices higher from already-elevated levels.
Crucially, we see a clear risk of $125/bbl in crude should the global market need to balance by summer 2022, as opposed to our current summer 2023 base case, in the face of these supply concerns, as we believe oil demand destruction would be required around the world to drive the faster rebalancing in global oil markets.”
While appearing on Yahoo Finance Live Currie did not rule out a “super spike” in prices of commodities as a direct fallout of the fluid geopolitical situation. He recommended exposure to aluminum, copper and oil for investors.
Concerns about production from Russia spiked as Brent crude touched $105 a barrel on Thursday before falling back to $98 on Friday. Western sanctions on Russia, the third largest producer of oil in the world, are expected in the next few days.
Natural gas prices also surged in European markets on Thursday, in two-digit percentage terms.
In the backdrop of the persistence of price rallies in gold, wheat, corn, and some other areas that heightened the risk of recession around the world, Currie added: “While the range of near-term price outcomes is wide, our longer-term, bullish underinvestment thesis is very much intact and reinforced by these events.”