What Oil Crisis?


Crude oil prices are back down to where they were on Valentine’s Day, more than a week before the invasion of Ukraine.  It’s still early in the crisis so beware of complacency.  

Futures traders/speculators, who drive short-term commodity prices often get the cash market equilibria wrong, which causes, in part, the excessive volatility.  If Russia sells their oil to China, doesn’t China’s demand for other sources of crude oil fall?  Commodities live in a fungible albeit, sometimes, fuzzy general equilibrium.

Wheat Prices

Wheat is the chart that worries us.  Rising wheat prices can spark global food riots.

The head of the United Nations warned Monday that Russia’s assault on Ukraine is pushing the global food system to the brink of disaster as wheat prices skyrocket and key supply chains are thrown into chaos, threatening a hunger crisis in Europe and well beyond.

“Russia and Ukraine represent more than half of the world’s supply of sunflower oil and about 30% of the world’s wheat,” U.N. Secretary-General António Guterres said in remarks to the press in New York City. “Ukraine alone provides more than half of the World Food Programme’s wheat supply… All of this is hitting the poorest the hardest and planting the seeds for political instability and unrest around the globe.” – Truthout


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