Commodites Right Now

MARKET VIEW 03 - 2022

Lead Portfolio Manager of Accilent Select, Mark Taucar CFA, and Accilent Capital's President and Portfolio Manager, Dan Pembleton MBA, CFA, discuss the outlook for commodities in the current environment.

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Video Summary

Market Focus: Commodities & Inflation

• Main Discussion: How the Russia-Ukraine conflict, inflation, and potential interest rate hikes affect commodity markets and investment portfolios.

Energy & Oil Markets

• Short-term effects:

  • Oil prices spiking due to turmoil involving Russia, the world’s #2 oil exporter.

• Medium to long term:

  • Russian oil may find alternative buyers (e.g., China), which could stabilize prices somewhat.

  • Sanctions could limit global supply but not eliminate it entirely.

  • Expectation: Oil prices may moderate, but the long-term average will be higher than pre-crisis levels (estimated increase of $10–15/barrel).

• Energy policy shifts:

  • Western countries, especially Europe, rethinking energy sources.

  • Canada and the U.S. seen as more reliable suppliers, likely leading to growth in North American energy production.

    
    

Broader Commodities Outlook

• Russia is a key exporter of nickel, platinum, gold, and other minerals.

• Gold: Russia may just buy and hold its own production.

• Other minerals: Expect upward price pressure due to supply disruptions.

• Tokar believes we're in a commodity supercycle — this conflict could prolong and deepen it.

Investment Strategy Guidance

• Stay long on materials and commodities.

• Don’t try to time short-term price spikes — think 5+ years out.

• Energy costs are a major input to mining and production — reinforcing commodity inflation.

• Portfolios should reflect structural trends, but not go "all in" on any one theme.

  
  

Financial System Risks & Sanctions

• Sanctions on Russian banks and use of SWIFT restrictions may lead to:

  • Financial inefficiencies

  • Counterparty risks due to derivatives exposure

• Concerns over off-balance-sheet derivative contracts:

  • Hard to see who holds risky positions tied to Russian producers

  • Disruption in payments and settlements could create systemic stress

    
    

Potential for Banking Contagion

• Sanctions could trigger missed payments or defaults on derivative contracts.

• Systemic risk is possible, though not evident yet.

• Historical reference to Lehman Brothers (2008) as a cautionary example.

• Warning signs to watch:

  • Falling yields on short-term U.S. Treasuries (flight to safety)

  • Widening interbank lending spreads (signals distrust among banks)

Final Cautions

• Sanctions could have delayed and unintended effects on the global economy.

• Disruption in capital flows and trade may destabilize markets months down the line.

• Off-book derivatives make risk hard to quantify — an area of ongoing concern.