Commodities Slide From Six-Month High as Ukraine Concern Recedes

Photographer: John Guillemin/Bloomberg

The southern branch of the Druzhba pipeline, which transports about 1.2 million barrels of Russian oil to Europe, passes through Ukraine on its way to refineries in Hungary, Slovakia and the Czech Republic. Close

The southern branch of the Druzhba pipeline, which transports about 1.2 million barrels... Read More

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Photographer: John Guillemin/Bloomberg

The southern branch of the Druzhba pipeline, which transports about 1.2 million barrels of Russian oil to Europe, passes through Ukraine on its way to refineries in Hungary, Slovakia and the Czech Republic.

Commodities declined from the highest level in almost six months on speculation that the threat to energy and agricultural supplies from escalating tension in Ukraine’s Crimea region may be exaggerated.

The Standard & Poor’s GSCI Index (SPGSCI) of 24 raw materials fell as much as 1.2 percent to 652.05, after surging 1.6 percent yesterday to the most since Sept. 6. The gauge was at 655.19 at 3:34 p.m. in New York. Brent crude lost 1.7 percent and gold futures fell 0.9 percent in New York. Corn and wheat rose.

Commodity prices decreased today after Russian President Vladimir Putin ordered soldiers in western Russia to return to their bases by the end of the week after military exercises ended on schedule. The Standard & Poor’s 500 Index rebounded to a record after falling the most in a month yesterday as Russia, the world’s largest energy exporter, seized control of the Black Sea region of Crimea in Ukraine. Haven assets reversed the prior day’s advance.

“You’re now seeing traders reassert themselves,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Yesterday, you had a knee-jerk reaction to what was a very scary situation. Putin has said that he has no plans to annex the Crimea and that’s been received by traders with a sigh of relief.”

The GSCI’s 14-day relative strength index rose to almost 73 yesterday as prices surged. Readings above 70 signal to some investors that gains may have been excessive. It was about 65 today. The index has advanced 3.6 percent this year, rebounding from a 2.2 percent drop in 2013.

Crude Tumbles

Oil jumped yesterday on concern that Russian shipments may be disrupted.

Brent fell $1.90 to settle at $109.30 a barrel on the ICE Futures Europe Exchange in London. West Texas Intermediate crude declined $1.59, or 1.5 percent, to end the session at $103.33 a barrel on the New York Mercantile Exchange.

“Oil markets’ concerns are misplaced,” Michael Wittner, the head of oil-market research at Societe Generale SA in New York, said in an e-mailed report. “If Russia were to cut off crude oil exports through Ukraine, they would be hurting themselves more than they would hurt Ukraine.”

About 313,000 barrels of crude a day traveled through Ukraine in 2013, according to the country’s Energy Ministry. The southern branch of the Druzhba pipeline, which transports about 1.2 million barrels of Russian oil to Europe, passes through Ukraine on its way to refineries in Hungary, Slovakia and the Czech Republic.

“The events have had no impact on the flow of oil,” Armstrong said. “There are about 300,000 barrels a day of Russian crude moving through the Druzhba pipeline right now.”

Haven Demand

Gold slid from the highest level in four months. Futures for April delivery declined $12.40 to settle at $1,337.90 an ounce on the Comex in New York. Prices climbed to $1,355 yesterday, the highest level for a most-active contract since Oct. 30, as the crisis boosted demand for a haven.

“We view any material restriction on global commodity trade as unlikely, and thus physical-market impacts should be limited,” Morgan Stanley analysts Adam Longson and Bennett Meier wrote in a report. “Geopolitical risk premiums fade without a physical disruption, with prices often lower three to six months later.”

Drills End

Putin attended the final day of the drills in the Leningrad region yesterday, according to a statement on the Kremlin’s website. They involved about 150,000 troops across several regions near the border with Ukraine from Feb. 26 to March 3.

“First he comes out with the army, then he apparently pulls back, but who knows for sure?” said Dominic Schnider, the head of commodities research at UBS AG’s wealth-management unit in Singapore.

The Kremlin continues to have 16,000 troops deployed in Ukraine’s Crimea region, after Viktor Yanukovych, the ousted president and Putin ally, fled to Russia. Russian forces ordered Ukrainian warships in Crimea to surrender, Ukraine’s acting President Oleksandr Turchynov said yesterday.

Putin said today he’s not considering adding Crimea to Russia and that Russia would send troops into Ukraine only in an extreme case.

Wheat Advances

Wheat for May delivery rose 1.9 percent to settle at $6.435 a bushel on the Chicago Board of Trade after losing as much as 1.7 percent in intraday trading today. It jumped 4.9 percent yesterday, the most since 2012, on speculation the crisis may cut shipments from Ukraine, which is set to be the world’s sixth-largest exporter this year.

Corn advanced 2.9 percent to close at $4.8425 a bushel, the highest settlement since Sept. 12 after earlier sliding as much as 1.1 percent.

Loading of Ukrainian grain for exports may remain unaffected by the threat of military conflict with Russia, Agritel SA said yesterday. Archer-Daniels-Midland Co., a grain trader, hasn’t seen a significant effect on its business in the country, it said in a statement.

Ukraine is forecast to ship 18.3 million metric tons of corn in the 2013-2014 season through June from 13.6 million tons a year earlier to become the top exporter after Brazil and the U.S., according to the International Grains Council. The nation may boost wheat exports this season to 9.5 million tons from 7.1 million a year earlier, making it the sixth-biggest supplier, according to the IGC.

To contact the reporters on this story: Marek Strzelecki in Warsaw at mstrzelecki1@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net; Dan Stets at dstets@bloomberg.net Margot Habiby, Richard Stubbe

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