Liquidity in commodity markets is 'collapsing' and volatility is making it worse, says Goldman Sachs' head of commodity research

• Liquidity in commodity markets is "collapsing," said Goldman Sachs' head of commodity research.
• This creates greater volatility in the market that further weakens liquidity, making volatility even higher, Jeff Currie said.

Commodity markets continue to see huge moves as conflict rages on in Ukraine, driving crosscurrents in liquidity and volatility, according to the head of commodity research at Goldman Sachs, Jeff Currie.

"Liquidity in these markets [is] collapsing across oil, gas, metals, agriculture," he told CNBC on Tuesday. "Part of that is higher volatility discourages investors and market participants, and then the liquidity drops off and volatility gets higher."

Worries about Russian supply shortages due to Western sanctions as well as self-sanctioning by companies, have fueled rallies in commodities.

Turmoil in commodity markets was most recently underscored Tuesday, when the London Metal Exchange suspended trading in nickel as the price spiked more than 100% to top $100,000 a ton.

While there's a bullish story to nickel because of its use in green-energy technology and electric vehicles, Currie said margin calls that forced short-sellers to cover their positions created a "vicious" upside.

"A big Chinese producer who was short out on the nickel curve had a margin call, and as they tried to cover those positions and buy it back it created a huge spike in nickel price," he said.

But this is not a new phenomenon. A similar dynamic happened in the oil market in 2008 when oil popped to nearly $150 as producers liquidated their short positions, Curried noted.

"What makes this one different is the magnitude of it," he said.