Russia’s Wagner Group Pullback Won’t Deflate Commodities Prices

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The tumult in Russia this weekend won’t send prices for energy and food down much further, according to a recent report from Academy Securities.

The issue is that while the attempted on-off coup by mercenary force Wagner Group to oust Russian President has likely weakened Vladimir Putin. While that may speed up the path to peace, other things have changed dramatically over the last year and a half.

The Academy report states the following:

  • “We are probably the closest we’ve been to seeing a defined path to peace since the invasion occurred, but its impact on markets will be muted as the world has changed a lot in the past 18 months.”

Friday and Saturday it looked like the Wagner Group, a Russian mercenary group that was previously loyal to Putin, would attempt to take control, of Moscow using its military power. Lucky for Putin a deal got cut with Wagner’s leader on Saturday. It resulted in the well-armed mercenaries backing off.

But perhaps more important, it weakened Putin’s political power. What happens next doesn’t necessarily mean peace will break out in the imminent future. “There is some small risk that this all gets worse before it gets better,” the Academy report states. “

For investors the key thing is what happens when or if Russia and Ukraine sign a peace treaty.

The outbreak of the war, which started on February 24, 2022, commodities prices in the energy and food sectors quickly surged to eye-popping levels. However, since then prices have retreated back considerably.

Academy explains:

  • “Russia has found new buyers of its commodities and seems unlikely (or even unable) to return to selling cheap fuel to Germany and the rest of Europe rather than to China (and India.)”

In any event, many but not all prices are now near normal. In other words, there’s not much further that they can fall. For instance, Brent crude oil recently fetched $74 a barrel down from near $120 late last year, according to TradingEconomics. That’s around the high-end of the normal range.

By contrast wheat, 28% of which comes from Russia and Ukraine, fetched $7.33 a bushel last Friday down from close to $12 in May 2022. That’s lower than it was, but still relatively elevated compared to the sub $5 level wheat prices languished for most of the last decade.

If peace does manage to emerge from Putin’s weakness, or via any other route, then there will likely be some commodities, such as wheat, seeing a slight dip. But don’t expect your gasoline costs to come down too much, if at all.

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