Oil, commodities price shock could cost over 4% of global GDP, Trafigura says

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Pump jack on an oil field in Emlichheim

By Julia Payne

LONDON – Soaring prices of commodities from oil to wheat in the wake of Russia’s invasion of Ukraine could cost the global economy the equivalent of at least 4% of gross domestic product, commodities trading major Trafigura said on Wednesday.

Oil prices, which Geneva-based Trafigura had already expected to hit $150 a barrel before the invasion, could rise higher still because of the difficulty of replacing Russian oil swiftly, the trader’s chief economist Saad Rahim said.

Some analysts have predicted oil, now trading at $122 a barrel, could hit $200 or more.

The United States has banned Russian oil imports and Britain said it would phase out purchases. Other Western states have not taken such steps but sanctions are encouraging many firms to avoid crude from Russia, one of the world’s biggest exporters.

“A $100 per barrel increase in prices will see a 3.5-4% hit on global GDP (gross domestic product), if we stay at that level for the entire year,” said Rahim, adding the crisis was also driving up wheat and food prices around the world, which would make the impact even higher.

“This shock is coming at possibly the worst conditions in terms of inventory, flexible capacity and deliverability.”

Saudi Arabia, one of the few countries with spare capacity, could boost oil output but that would cut the world’s safety cushion, a return of Iranian crude may be months away and Venezuela cannot act quickly even if U.S. sanctions are eased. U.S. shale drillers also cannot ramp up output swiftly.

“We were already very tight in terms of stocks outside of China, especially crude but also short on diesel,” Rahim said, adding the release of 60 million barrels by the International Energy Administration (IEA) would have limited impact.

Tightness in crude and diesel echoes the market in 2008, although the world is not already in recession now. “Oil demand has gone up 17% since 2008 but global GDP is up 32%,” he said.

On sanctions, Rahim said: “The measures that have already been taken have introduced a lot of sand into the gears of global commodity trading – whether its freight, finance and insurance. All things that serve to stop a large portion of flows.”

(Reporting by Julia Payne Editing by Edmund Blair and Mark Potter)