The financial markets seem to be dominated by developments in the energy commodities market. Oil and gas prices may be climbing higher due to increased fears that the world is about to cut off supplies from Russia.
WTI crude oil futures extended their rally on Thursday above $115 a barrel, the highest level since 2008, on fears of further supply disruptions due to Russian sanctions over the invasion of Ukraine. On Wednesday, the U.S. attacked Russia's refining sector with new export restrictions and Belarus with new export restrictions, but so far has not attacked Russian oil and gas exports over concerns about energy prices.
In contrast, the OPEC+ alliance, to which Russia belongs, also maintained its plan to increase production by 400,000 barrels per day in April, despite the market turmoil caused by the war in Ukraine. Moreover, U.S. crude oil inventories continued to decline, with inventories at the Cushing, Oklahoma oil hub falling to their lowest level since 2018.
As a result, the price of WTI crude oil, settled in USD only since the beginning of the year, has skyrocketed by 53 percent, while the price of Brent crude oil has risen by 52 percent. Meanwhile, the price of gas in the U.S. has risen by 30 percent since the beginning of the year. Such significant rises in the prices of major energy commodities will most likely translate into a huge increase in inflation, which may have peaked in the first quarter of this year. In the current situation, not only could the peak in inflation be much higher, but it could remain high for a very long time to come.
According to the PIMCO fund, the only way to protect yourself from inflation is to consider holding the factors that cause inflation, namely energy commodities, in your portfolio.
Additionally, the return in the stock/resource relationship can be quite visible. The quotient of the GSCI index (Goldman Sachs commodity index) to the S&P 500 seems to be rising rapidly. This may also indicate a possible capital flow from equities towards energy commodities, and we may be in the middle of a new super cycle on the commodities market.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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