3 Scenarios for Oil, Gas, Metals by BofA

The bad

In the “bad” or baseline scenario, a “face-saving solution” would be found after 12 months of war, but the restrictions placed on Russian financial institutions would remain after the conflict was settled, Blanch explained. These export restrictions could “force a major diversion of commodity movements around the world,” with Russian flows of goods “fundamentally diverted away from Europe and the US” and to China instead. While certain commodities could experience “modest surpluses and deficits,” Blanch predicts these “dislocations” would not be a major blow to the global economy.

oil

In the “bad” scenario, Blanch predicts that oil prices will be average $110 a barrel when Russian oil flows shift towards China and India, and this “demand destruction” becomes “notable” as oil prices rise.

If Chinese refiners start using more Russian oil at the expense of Middle Eastern oil, Blanch believes its flows will be diverted to Europe. In the near term, he also expects Russia to build up crude stockpiles and ultimately slow some production until those shortages are resolved. Those decisions, he added, would likely be “slowly materialized” and result from either US shale production or an OPEC production acceleration.

gas

If low supply from Russia continues, Blanch forecasts average gas prices €105 per megawatt hour. The “bad” scenario would also reduce European storage stocks, particularly at the start of winter if demand for gas from Asia remains at 2021 levels this summer.

aluminum

Blanch predicts prices will reach $4,000 in 2Q22, $4,250 in 3Q22, $4,500 in 4Q22, and $4,500 in 2023.

“Logistics and financing make it difficult for Russia to ship aluminum. China is self-sufficient, so Russia’s aluminum units are initially stranded. Depending on how quickly the war is settled, the upheavals can subside quickly. Overall, fundamentals will continue to tighten until limited supply supplements,” he wrote.

copper

Blanch thinks the prices could be enough $10,500 in 2Q22, $11,500 in 3Q22, $10,000 in 4Q22, and $9,500 in 2023.

“Logistics and financing make it difficult for Russia to ship copper, but the country isn’t a big exporter, so the dislocations could keep the market tighter than it would be without it. Supply losses will keep the global market oversupplied in 2023/24,” he wrote.

nickel

Blanch forecasts the prices to be achieved $35,000 in 2Q22, $40,000 in 3Q22, $35,000 in 4Q22, and $37,500 in 2023.

“Russia accounts for about 20% of the Tier 1 refined nickel market. Given tightening fundamentals, China could eventually take over most of Russia’s production, but it will take time to divert materials, so it depends on how quickly the war is resolved.” he wrote.

platinum

Blanch thinks the prices will be enough $1,250 in Q2 22, $1,500 in Q3 22, $1,500 in Q4 22, and $1,500 in 2023.

“Russia is a relatively small platinum producer. As the world market is still oversupplied and there is enough stock available, prices remain limited. There is an incentive to switch from palladium to platinum in catalysts,” he wrote.

palladium

Finally, Blanch predicts that palladium prices will reach $3,250 in 2Q22, $3,250 in 3Q22, $2,750 in 4Q22, and $2,750 in 2023.

“Russia is an important palladium supplier. The western world will continue to use Russian ounces, but when the contracts expire they will look to switch to South African supplies. This conversion may take some time, so prices could rise in the short term. Another incentive to switch from palladium to palladium in autocatalysts,” he wrote.

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