3 BofA oil, gas and metals scenarios
In the “bad,” or baseline, scenario, a “face-saving solution” would be found after 12 months of war, but restrictions on Russian financial entities would continue after the conflict is resolved, Blanch said. These export limitations could “force a major rerouting of commodity movements around the world,” with Russian commodity flows “fundamentally diverted away from Europe and the United States” and instead heading to China. While “modest surpluses and deficits” could emerge for some commodities, Blanch predicts that these “dislocations” would not be a blow to the global economy.
In the “bad” scenario, Blanch predicts that oil prices will average $110 per barrel as Russian oil flows shift to China and India, and “demand destruction” would become “noticeable” as oil prices rise.
If Chinese refiners start using more Russian oil at the expense of Middle Eastern oil, Blanch believes the latter’s flows will be redirected to Europe. In the near term, he also expects Russia to hoard a supply of crude oil, eventually slowing some production until those bottlenecks are resolved. These resolutions, he added, would likely be “slow to materialize” and would result either from U.S. shale production or an OPEC production ramp-up.
If low supply from Russia continues, Blanch predicts gas prices will average €105 per megawatt hour. The “bad” scenario would also decrease European storage stocks, especially as winter approaches, if Asian gas demand this summer stays at 2021 levels.
Blanch expects prices to reach $4,000 in 2Q22, $4,250 in 3Q22, $4,500 in 4Q22, and $4,500 in 2023.
“Logistics and funding make it difficult for Russia to ship aluminum. China is self-sufficient, so Russian aluminum units are initially stranded. Depending on how quickly the war is settled, dislocations may Overall fundamentals will continue to tighten on supply additions,” he wrote.
Blanch thinks prices could reach $10,500 in 2Q22, $11,500 in 3Q22, $10,000 in 4Q22, and $9,500 in 2023.
“Logistics and financing make it difficult for Russia to ship copper, but the country is not a major exporter, so disruptions could keep the market tighter than without. Supply losses will keep the market global oversupplied in 2023/24,” he wrote.
Blanch predicts prices to be reached $35,000 in 2Q22, $40,000 in 3Q22, $35,000 in 4Q22, and $37,500 in 2023.
“Russia accounts for around 20% of the class 1 refined nickel market. With tight fundamentals, China could eventually take the bulk of Russian production, but it will take time to re-route materials, so it depends on how quickly with which the war is settled. LME stocks will fall to extremely low levels,” he wrote.
Blanch expects prices to reach $1,250 in 2Q22, $1,500 in 3Q22, $1,500 in 4Q22, and $1,500 in 2023.
“Russia is a relatively small platinum producer. With a still oversupplied global market and sufficient stocks available, prices need to remain capped. There is an incentive to switch from palladium to platinum in catalysts,” he said. writing.
Finally, Blanch predicts that palladium prices will reach $3,250 in 2Q22, $3,250 in 3Q22, $2,750 in 4Q22, and $2,750 in 2023.
“Russia is a major supplier of palladium. The Western world will continue to use Russian ounces, but as contracts expire they will try to switch to South African supply. This change may take time, from so prices could skyrocket in the near term for palladium to palladium in automotive catalysts,” he wrote.