On February 21, Russian President Vladimir Putin delivered a national video speech, announcing that he recognized the Donetsk People’s Republic and the Luhansk People’s Republic, which were self-proclaimed by the eastern Ukrainian civilian armed forces, as independent countries. As soon as the news came out, the geopolitical situation between Russia and Ukraine became increasingly tense, and the international crude oil market surged. That night, major EU leaders stated that the EU would take sanctions against those involved in “this illegal act.” At the same time, the US White House also stated that Americans are prohibited from making new investments, trade and financing in the Donbas region.
The situation between Russia and Ukraine is becoming increasingly difficult to ease, and the international situation has become more severe and urgent. At present, the situation in Russia and Ukraine is closely related to the crude oil market. Russia, as the world’s major oil and natural gas producer and exporter, is related to global energy security. According to the International Energy Agency, oil consumption is expected to increase from 96.2 million barrels per day last year to 99.53 million barrels per day in 2022, basically returning to pre-epidemic levels. According to Rosneft, Russia’s total crude oil production in 2021 is approximately 10.9 million barrels per day, and Russia’s production alone is approximately one-tenth of world demand. Therefore, the unrest in Russia and Ukraine has a great impact on crude oil prices.
Although Russia and Ukraine are not cotton-producing countries, the sharp rise in crude oil prices will increase the price of cotton’s alternative fiber. Will it have a negative impact on cotton? According to analysis by cotton professionals, the current crude oil price continues to rise sharply and has gradually approached US$100/barrel. In the future, some institutions predict that the price may reach a high of US$120/barrel in the future. In the short term, it will support cotton prices. After all, rising prices of PTA and short fiber will have a certain supporting effect on cotton prices. However, the core factor still needs to pay attention to the fundamentals of supply and demand of cotton itself. Cotton inventories continue to increase, and the downstream demand situation is less than expected, especially when cotton prices have hit a new high. They have recently shown weakness. In the absence of good news, the market is expected to remain weak and volatile. It is unrealistic to expect Zheng cotton to fall too deeply. After all, ginning companies sell at high prices and spot prices are stable.
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