Commodities Climb to Six-Month High as Oil, Corn Rise on Ukraine

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Commodities advanced to the highest level in almost six months as escalating tension in Ukraine fueled concern that energy and agricultural supplies will be disrupted while increasing demand for gold as a haven.

The Standard & Poor’s GSCI Index (SPGSCI) of 24 raw materials climbed as much as 1.6 percent to 660.26, the highest level since Sept. 9, and was at 659.55 at 8:10 a.m. in London. Brent crude in London jumped 2 percent, wheat inChicago surged 3.9 percent, while gold futures in New York increased 1.9 percent. Natural gas and corn also advanced.

Russia, the world’s largest energy exporter, seized control of the Black Sea region of Crimea in Ukraine, where tension has escalated since Russia-backed Viktor Yanukovych was overthrown as president on Feb. 22. More than half of Russia’s gas exports to the European Union are shipped through Ukraine, which is set to be the third-biggest corn shipper and the sixth-largest wheat exporter this year.

“If the situation is not defused, it has the potential to spark wider economic turmoil through higher oil and gas prices, trade sanctions and a general ratcheting up of global tensions that could endanger the fragile global economic recovery,” Edward Meir, an analyst at INTL FCStone Inc. in New York, wrote in a note today. “All this means that gold will likely do better over the short term.”

The measure of commodities extended its increase since the end of December to 4.3 percent, rebounding from a 2.2 percent drop last year.

Gas Prices

Gas futures jumped as much as 2.8 percent in New York as Ukraine mobilized army reserves and amid speculation that a winter storm moving from the U.S. Midwest to Northeast will boost heating demand. U.K. natural gas, which is not part of the commodities index, jumped the most in more than 16 months.

Gas for next-month delivery rose 6.9 percent to 60 pence a therm ($10 a million British thermal units), the biggest gain since Oct. 31, 2011, on ICE Futures Europe exchange in London. That’s the highest price since Feb. 12.

OAO Gazprom, Russia’s gas-export monopoly, may end last year’s agreement to supply Ukraine at a cheaper rate unless it’s paid $1.55 billion owed for fuel, it said March 1. It’s the first time since the overthrow of Yanukovych that Russia has directly used its position as Ukraine’s dominant energy supplier to pressure the new regime.

Wholesale gas in Europe surged in January 2009 after Russia halted pipeline deliveries amid a dispute over prices and transit terms.

Brent Futures

Brent crude advanced for a second day to $111.33 a barrel and West Texas Intermediate oil climbed 1.7 percent in New York. Crimea, home to Russia’s largest overseas naval base, belonged to Russia until Nikita Khrushchev gave it to Ukraine in 1954.

“The short-term consideration is the risk of escalation,” said Ric Spooner, a chief analyst at CMC Markets in Sydney who predicts investors may sell Brent contracts if prices reach $113 a barrel, a price last seen in December. “It’s a volatile situation. Europe does have significant inventories, so there is the ability to withstand short-term disruptions. But any kind of longer-term infrastructure damage will have an impact.”

Corn jumped as much as 3 percent to $4.7725 a bushel in Chicago, the highest price for a most-active contract since September. Wheat increased to the highest level since December.

Ukraine will probably export 9.5 million metric tons of wheat this season from 7.1 million tons in 2012-2013, making it the sixth-biggest supplier, according to the International Grains Council. It was the fourth-largest corn exporter in 2012-2013, IGC data show. The country may leapfrog Argentina this year, shipping 18.3 million tons through June from 13.6 million tons a year earlier, according to the IGC.

John Kerry

U.S. Secretary of State John Kerry is traveling to Ukraine today as western leaders seek to respond to the movement of troops into Crimea, where a majority of residents speak Russian. European Union foreign ministers will hold an emergency meeting today, while the U.S. warned of possible sanctions against Russia and the Group of Seven nations said it was suspending its participation in planning for the Group of Eight summit in Russia in June.

Gold futures rose as much as 2.2 percent to $1,350.50 an ounce, the highest since Oct. 30. Prices extended the first back-to-back monthly advance since August as assets in bullion-backed exchange-traded products posted the first monthly increase since December 2012.

“Geopolitical risk out of Ukraine is giving gold a safe-haven bid,” Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group, said from Singapore. “It remains to be seen if it will be sustained.”

The S&P GSCI rose 4.4 percent in February in the biggest monthly gain since July, led by a rally in coffee following a drought in Brazil, the biggest grower of the bean. Hog futures, the second-biggest gainer on the gauge in 2014, rose to a record on Feb. 28 as a virus that kills piglets spread amid signs that U.S. pork output is declining.