Julia Payne

LAUSANNE (Reuters). -Energy markets and commodities are reeling from Russia’s incursion in Ukraine. On Tuesday, top traders around the globe warned of a gas and diesel crisis in Europe as well as economic recession if Russian flows continue to fall.

The prices of gas, oil, metals, and agricultural commodities have skyrocketed since the invasion. Companies have been forced to reduce traded volumes because they have limited liquidity.

Vitol Gunvor, Trafigura and Gunvor were the chief executives of three major energy traders. They said that in particular the gas market had been unable to manage margin calls.

Russell Hardy, Vitol’s CEO, stated that the longer the war continues the higher the likelihood of economic recession. This was according to the FT Commodities Global Summit.

Russia considers the most significant invasion of Europe in history a special military operation to protect Ukraine from Nazis and disarm Ukraine. According to the West, this is an excuse for an unprovoked invasion of a democracy country.

Even before Russia invaded on February 24, energy markets were short of capacity. Now, they will have to deal with the loss of approximately 2 million barrels per daily (bpd), of Russian oil. Russia competes against Saudi Arabia for the title of world’s largest oil exporter.

Although sanctions are not being imposed globally on Russian oil, many companies have boycotted Russian commodities.

Hardy stated that “many Europeans want to boycott Russian oil”, adding that it was not yet clear how much oil would be destroyed.

Jeremy Weir (Chief Executive, Trafigura) estimated the loss of Russian crude products and oil at 2 to 2.5 million bpd. Gunvor and Vitol said that while the drop isn’t immediately measurable, they don’t see it exceeding 3,000,000 bpd.

Three businesses stopped buying Russian oil in spot transactions, but continue to look for longer-term agreements.

DIIESEL SHORTAGES

Diesel is Europe’s top worry. Europe’s top concern is diesel. It imports 50% of its food from Russia.

It is unlikely that any replacement oil will be available for months. Hardy stated that Iran may increase its exports by one million barrels per day if an international nuclear agreement is reached. However, the Organization of Petroleum Exporting Countries and its allies will likely not increase production faster than Iran.

Hardy explained that the “they have been pretty clear up til this point that they will continue their OPEC+ arrangement,” adding that African countries, in particular, had less oil available than prior to the COVID-19 pandemic.

Is there a possibility of a 1 to 2 million BPD increase?” His answer was “YES, but it is unlikely in the next two months”.

As tight credit lines and market participants have to reduce their positions due to volatility, it has made futures trading difficult, in particular for the.

According to trading firms, the market is looking for regulators and central banks as well as governments for emergency liquidity.

Gunvor’s chief executives stated that TTF (Dutch wholesale gas futures) was not suitable to hedge the global market for liquefied natural gases (LNG).

Margin calls are the problem. The dysfunctional TTF prices is what’s causing this issue. Over the past five years, gas tradeability has increased dramatically and an appropriate benchmark for absorbing that volume was not established,” stated Torbjorn Tornqvist, CEO Gunvor.

We are now in the middle of an earthquake. Many parties got hurt.”

Tornqvist explained that liquidity problems caused by extreme margin calls forced traders to focus more on core business.

In the case of member defaults, initial margin is cash or collateral that cleared members deposit to the clearing house in order to protect themselves against potential losses. Margin calls are when there is too much gap between current spot prices and future sales. This forces traders to raise their deposit at the exchanges for each trade.

The spot market is dry up. Every trader is focusing on their core business. Tornqvist said that although we are not doing as much volume as we used to, we have the ability to size up quickly.”