‘The Commodities of War’

Oil barrels isolated on white background

Uncertainty abounds in the world right now. This is why we have a plan to deal with uncertainty as it comes in. We are long-term investors and are not swayed by 10% moves in the S&P 500. We woke up Thursday to the declaration of war, and the market surged up 3.8% over the next two days. We never know how a headline will affect the market over the short-term.

What are the longer-term effects that could be coming down the pike from Russia brutally invading a sovereign country? We will not get into regime change or anything like that, we leave that to the political commentators. We will concentrate on markets and economics. What goods do Russia and Ukraine have that other countries want? Oil and wheat. Russia has plenty of oil, while Ukraine was the breadbasket of the Soviet Union and is currently the 6th largest wheat producer in the world with Russia the 3rd largest. The war will have an effect on wheat prices, and indeed wheat futures in the US are up 6.7% since the declaration of war. This can influence food inflation, as higher input prices can have a ripple effect throughout the economy.


The future of oil prices is a big question following the implementation of economic sanctions on Russia. As we pointed out last week, the last time Russia invaded Ukraine the price of oil was affected temporarily – see the chart above of West Texas Intermediate (WTI) crude prices, a widely followed global oil benchmark. The last invasion occurred at a high price base. Recently, the price of oil has been surging as inelastic demand has piled up against purposefully limited supply. Oil is an input into inflation directly, and indirectly affects core inflation (which the Federal Reserve is concerned with) through higher input costs. But oil is being kept artificially high right now. OPEC is producing several million barrels per day fewer now than it was in 2015. This lower production has been one of the primary drivers of higher oil prices.


There are US frackers who are taking a long time getting back up and running after being decimated twice in the last decade due to sharp drops in oil prices. It was OPEC+’s decision to increase production in 2014-2015 that led to the crash in oil prices seen in these charts. The surplus was created to inflict pain on US oil production which OPEC+ had deemed was problematic to their ability to control the price of oil. This glut had a temporary effect on the US producers’ output as seen on the chart below. But that output quickly rebounded after some companies blew up. The second and more important blow to US oil production came during the pandemic when oil demand finally became elastic and plummeted (just as Putin was increasing oil production) causing a price drop that was devastating to US oil production. There was a huge bout of bankruptcies in 2020 in the sector.

Two rounds of bankruptcies are the leading causes for US oil production being at lower levels than pre-pandemic. The market has been telling oil exploration companies to be wise with their capital this time around, not to go all in at 100 miles per hour. All told, energy prices could stay higher for longer due to the conflict, but even taking into account possible reductions in Russian output there is excess capacity in the world to bring prices down if there is a desire to do so.


Past performance is no guarantee of future results.  Trend signals are proprietary research of Fortunatus Investments, LLC, a Registered Investment Advisor with the Securities and Exchange Commission (SEC). Reference to registration does not imply any particular level of qualification or skill.  Prior to June 2014, Fortunatus Investments was a wholly-owned subsidiary of Executive Wealth Management, LLC and they continue to share common ownership and control. The data source for returns is FactSet Research Systems Inc. This chart is not intended to provide investment advice and should not be considered as a recommendation.  One cannot invest directly in an index. Executive Wealth Management does not guarantee the accuracy of this data.


Model Updates

There were no trades in the EWM Investment Solutions models during the week ending on February 25th, 2022.  The major equity market sectors remain in a long-term favorable trend, and the Asset Allocation models are near their maximum allowable equity exposure with domestic stocks favored over international shares. 


Quote of the Week

Analysts say the [Russia-Ukraine] conflict could accelerate the fracturing of the internet, which not so long ago was largely split between China and the rest of the world. Increasingly, big tech companies are beholden to a patchwork of local rules, leading some to believe the “splinternet” is coming closer to reality.

Excerpt from the recent The Wall Street Journal article entitled “Facebook, Apple and Other Tech Giants Face Rising Pressure Over Ukraine” that detailed the way the current hostilities in Eastern Europe are helping expedite the balkanization of global computer networks.



Executive Wealth Management (EWM) is a Registered Investment Advisor with the Securities and Exchange Commission. Reference to registration does not imply any particular level of qualification or skill. Investment Advisor Representatives of Executive Wealth Management, LLC offer Investment Advice and Financial Planning Services to customers located within the United States. Brokerage products and services offered through Private Client Services Member FINRA/SIPC. Private Client Services and Executive Wealth Management are unaffiliated entities.  EWM does not offer tax or legal advice. Please do not transmit orders or instructions regarding your accounts by email.  For your protection, EWM does not accept nor act on such instructions. Please speak directly with your representative if you need to give instructions related to your account. If there have been any changes to your personal or financial situation, please contact your Private Wealth Advisor. 

Returns are calculated as indicated below with reinvested dividends not considered except for the Barclays U.S. Aggregate Bond Index. Data source for returns is FactSet Research Systems Inc. The London Gold PM Fix Price is used to calculate returns for gold.

1 Week = closing price on February 18, 2022 to closing price on February 25, 2022

 1 Month = closing price on January 25, 2022 to closing price on February 25, 2022

 3 Month = closing price on November 24, 2021 to closing price on February 25, 2022

 YTD = closing price on December 31, 2021 to closing price on February 25, 2022

All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness. All information and opinions as well as any prices indicated are current only as of the date of this report, and are subject to change without notice. Material provided is for information purposes only and should not be used or construed as an offer to sell, or solicitation of an offer to buy nor recommend any security. Any commentaries, articles of other opinions herein are intended to be general in nature and for current interest. Some of the material may be supplied by companies not affiliated with EWM and is not guaranteed for accuracy, timeliness, completeness or usefulness and EWM is not liable or responsible for any content advertising products or services.

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