Oil prices are forecast to soar as high as $US200 ($290) a barrel – near doubling – as Russia’s invasion of Ukraine shows no signs of abating, signalling further hip-pocket pain at the bowser and making a range of food from wheat to lemons more expensive, according to Rabobank.
The agribusiness banking giant has forecast three scenarios from the Ukraine conflict – now in its third month – and all point to higher oil, fertiliser and food prices, sparking “heavy trade disruptions”.
As central banks across the world including, the Reserve Bank of Australia, begin raising interest rates again to rein in inflation, the ongoing conflict in Ukraine is expected to add further pressure on the cost of living.
Russia provides about 10 per cent of global crude exports and since it launched its invasion in March, oil prices have soared adobe $US100 a barrel – almost double the average price of the past two years.
RaboResearch general manager for Australia and New Zealand, Stefan Vogel, has forecast oil prices to soar as high at $US200 in his worst case scenario, which involves Western countries unleashing Iran-style trade sanctions on Russia. Even under the current “mild sanctions” oil is expected to advance to $US120 a barrel, according to Mr Vogel’s estimates.
“The EU and other countries are working on further sanctions against Russia, and their next package will likely further reduce Russian energy imports and cut out Russian oil imports into the EU by late 2022,” Mr Vogel said.
“At the same time, Russia is preparing legislation to disrupt commodity exports to countries that impose sanctions or supply Ukraine with weapons. Both sanction packages will likely keep energy prices volatile and high.
“Our newly developed impact scenario reflects a European ban on Russian oil and sees oil prices rise globally to more than $US170/bbl, despite our assumption that Russia will be able to sell half of its oil volumes previously intended for Europe at a discount to countries that have not joined the sanctions, i.e. India and China.”
The conflict in Ukraine as already sent the global food price index to a record high and has been exacerbated by dry weather in the US wheat belt, Canada and Brazil.
According to Rabobank’s report, wheat prices are set to rise around 45-50 per cent across all three scenarios. It comes as ASX-listed grain handler Graincorp’s half-year net profit has surged from $50.5m to $246m, with the group’s chief executive Robert Spurway saying it will take years for Black Sea exports to return to normal levels following the Russian invasion.
Mr Vogel is forecasting the conflict to put upward pressure on grain and oilseed prices for “years to come”.
“Ukraine would have shipped about as much wheat, barley, and canola to the world market in the 2021/22 season as Australia is shipping in the current record season.
“Ukraine’s crop production and exports in 2022/23 have already suffered damage, but volumes, especially export volumes, would likely be better in the event of a quick resolution. Still, moving grain through partly damaged road and rail infrastructure to ports that are surrounded by mines would be difficult.
“A recovery of Ukraine close to its full production and export potential is likely only possible in future seasons.”
Australian farmers are unlikely to fully benefit as they battle rising input costs. Mr Vogel said Australian grain prices have not increased as much as those of export competitors in the US or the EU.
“Grain farmers are benefiting from these increased prices, but not equally. Because the recent record crop is stretching export logistics to their limits, Australia is unable to ship more this season, and the country is seeing stocks rise.
“Still, for the upcoming season(s), Australian grain and canola farmers are benefiting from stronger prices, though not as much as many other parts of the world. And, while high prices are favourable for grain producers, they also mean high costs for processors and consumers, whether the end product is food or animal feed.
Fertiliser prices are also likely to limit gains from record food prices – with Russia and Belarus accounting for more than 30 per cent of global potash exports, while China is yet to fully resume urea exports, having limited them during its energy crisis in 2021, Mr Vogel said.
“Given Australia’s import dependence, its fertiliser chain is more vulnerable than usual. Australia may face some temporary shortages, as key import competitors like Brazil and India will also try to secure their needs in the global market.
“(The) fresh produce and tree nuts … (sectors) will largely feel indirect impacts from higher
fertiliser and energy costs. Ukraine and neighbouring Moldova are among the top ten global
walnut exporters, and the war may somewhat impact this trade flow. Still, secondary effects on other tree nut exporters, like Australian almond producers, are likely rather small.
“Russia is among the world’s top ten fruit importers – with imports including bananas, citrus, stone fruits, and lemons – which could drive trade rerouting, the effects of which, as in the case of citrus, might also be felt by Australia.”
Extracted in full from: More petrol price pain to come, with Rabobank expecting oil prices to soar as high as $US200 a barrel (theaustralian.com.au)