The Black Sea grain deal hangs by a thread
Last weekend, Russia suspended its participation in the UN-brokered Ukrainian grain export deal following a drone attack on its naval fleet in Crimea that Moscow blamed on Kyiv. On Tuesday, Russia said it would only resume the grain deal if it secured “real guarantees” from Kyiv. The next day, Moscow apparently received those: It announced it would rejoin the grain deal after all, following assurances from Ukraine that it wouldn’t use the Black Sea corridor to attack Russia.
All this has made for a dizzying week for wheat prices: The December wheat contract on the Chicago Board of Trade jumped nearly 6 percent on Monday, before falling over 6 percent on Wednesday. More broadly, Moscow’s moves underline its continuing ability – and willingness – to weaponize commodities to achieve political and military aims, despite (and perhaps encouraged by) ongoing global food crisis.
Chicago Board of Trade, December wheat contract
Source: Yahoo Finance
Oil companies are spending on buybacks, not production
After last week’s blockbuster earnings from energy giants including Shell, Exxon, Chevron, and TotalEnergies, BP has followed suit with a bumper 8.2 billion USD profit in the third quarter, doubling from a year earlier and its second highest ever. Investors will be pleased: The company also announced 2.5 billion USD in stock buybacks, which brings total repurchases announced in 2022 to 8.5 billion USD. The White House is less impressed: President Joe Biden this week accused the oil majors of “war profiteering,” and said he wants to impose higher taxes on the companies’ “windfall” profits if they don’t reinvest those earnings in boosting production. Of course, this rhetoric is likely in large part a politically motivated effort to deflect blame for rising energy costs. Regardless, it is unlikely Biden would be able to push a windfall tax through Congress. But the bigger question remains how the government can incentivize more domestic oil production. Stubborn inflation, aggressive Fed rate hikes, and growing fears of a looming recession aren’t helping. Nor is lingering concern that the moment today’s energy crisis calms, the government will once more turn against fossil fuel production.
An OPEC for battery minerals?
Indonesia’s investment minister told the Financial Times this week that his country was looking into setting up an OPEC-style cartel for battery minerals. Those efforts echo discussions in South America, where talk of a “lithium OPEC” among key regional producers like Argentina, Bolivia, and Chile is picking up pace. Telam, Argentina’s national news agency, reported last month that foreign ministers from the three “lithium triangle” countries are in “advanced talks” on a mechanism that would allow them to fix the price of lithium “at a global level.” According to the Brazil’s Rio Times, the foreign ministers believe they could even get Australia on board with the idea.
Whether either of these OPEC emulators will achieve the sort of global pricing influence that the actual OPEC holds is another question. For one, while Argentina, Bolivia, Chile, and Indonesia have significant battery mineral reserves, many of their major projects now depend on investment from Chinese firms. Plus, China holds a 58 percent share of global lithium processing capacity. Does this mean that a lithium OPEC is on the horizon, but it will be under the thumb of Beijing?
Canada freezes out Chinese lithium investors
That said, Chinese overseas lithium projects may have oncoming headwinds. The Canadian government on Wednesday ordered Chinese companies to divest from three Canadian lithium miners, citing national security reasons under the Investment Canada Act. The measure affects the investments of Sinomine Rare Metals Resources Co., Chengze Lithium International Ltd., and Zangge Mining Investment Co. in Canada’s Power Metals Corp., Lithium Chile Inc., and Ultra Lithium Inc., respectively.