Commodities hit July storm with Putin and Powell stirring fear

COMMODITIES are careering into a second half that promises as much turmoil as the first, with the world facing an escalating energy crisis, copper plunging on Fed-fueled recession fears, and Russian President Vladimir Putin delivering a shock for Shell Plc.

Russia’s move to reshuffle ownership of the Sakhalin-2 gas plant spells trouble for Shell’s plan to offload its stake. An analyst in Japan warned it “could even trigger a panic” in liquefied natural gas markets—although Moscow said Putin’s decree isn’t a threat to supplies, and isn’t nationalization.

Energy crises and central bank moves to crush inflation present powerful headwinds across markets, underscored by copper’s collapse Friday below $8,000 a ton. Next week’s minutes of the last Federal Reserve meeting should give more detail on the bank’s thinking. There’s also the United Nations’ annual report on food security, which comes ahead of an important month for the wartorn wheat market.

Putin’s latest gambit

JUST as Europe’s fears over Russian gas supplies reach fever pitch, the man in the Kremlin unleashed another energy surprise. Putin delivered a bombshell for foreign investors in Sakhalin-2, including Shell as well as Japan’s Mitsubishi Corp. and Mitsui & Co. Rights to the project will be vested in a new Russian company, with zero compensation for those who opt out.

What exactly this means isn’t yet clear. But the move threatens to complicate Shell’s efforts to sell its 27.5 percent stake, and casts a cloud over the future of gas supplies to Japan, which depends on Russia for about 9 percent of its imported LNG. Expect to hear more on how Japan might go about replacing Russian gas imports —a task that’s made tougher because Europe is doing the same.

Nothing but trouble

EUROPEAN gas and power markets are in turmoil and the energy crisis has barely begun. The single biggest risk in coming weeks is that the Nord Stream pipeline—europe’s key channel for gas from Russia— is not restarted after 10 days of maintenance that begin July 11. Regardless of the outcome there, Europe’s politicians are under intense pressure to act immediately to avoid even deeper troubles when winter arrives.

The focus remains on heavy consumer Germany, which already raised its gas risk level to the second-highest “alarm” phase, tightening monitoring of the market and rebooting some coal-fired power plants. The next step could be more stringent steps to spur demand destruction. Allowing utilities to pass on higher costs to customers would speed rationing of supplies, but that’s an option Economy Minister Robert Habeck has so far resisted.

Manic metals

IF copper really is a barometer of the world economy, we should be getting worried. The metal used in electrical wiring just tumbled below $8,000 a ton for the first time since early 2021. The gathering drumbeat of warnings about a global recession is weighing on all metals, and China’s tentative recovery has so far prompted a collective shrug from investors.

What next? Some steady, non-surprising data from major economies should help steady nerves. Investors will also scrutinize the Fed minutes on Wednesday for clues on what their July meeting might bring. But there’s not much in the short term that bodes well for copper, with the major risks pointing downward: further escalation in Europe’s energy crisis could trigger a deeper sell-off in coming weeks and put $7,500 a ton in view.