WASHINGTON (DTN) -- Following surging values this week into overnight trading triggered by escalating sanctions on Russia's financial and energy sectors, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange plummeted more than 10% on Wednesday after Ukrainian President Volodymyr Zelensky indicated Kyiv may abandon its request for membership in the National Atlantic Treaty Organization in exchange for an immediate ceasefire ahead of peace talks between Russian Foreign Minister Sergey Lavrov and Ukrainian counterpart Dmytro Kuleba.
Both ministers are scheduled to meet on Thursday in the resort city Antalya in southern Turkey for the first Cabinet-level meeting between the two countries since Russia invaded Ukraine on Feb. 24. The stakes could not be higher. Nearly two million Ukrainians have fled the country since the beginning of hostilities, several Ukrainian cities turned into rubble, and the number of civilian casualties unacceptably high for an unprovoked and asymmetrical conflict instigated by Russian President Vladimir Putin. Faced with this dire situation, Zelensky said his country is ready for a diplomatic solution and compromise regarding Ukraine's membership in NATO along with status of Crimea and breakaway republics of Donbass and Lugansk. He also added that Ukraine will require additional security guarantees from any aggression in the future.
The list of Russian demands for an immediate ceasefire includes formal recognition of Crimea as part of Russia and independence of Donbass and Lugansk in eastern Ukraine. The third demand is a guarantee of neutral status for Ukraine, meaning Kyiv would never join NATO or the European Union.
Putin's stated war goals were originally to "demilitarize and de-Nazify" Ukraine, both of which implied installing a pro-Russian puppet regime in Kyiv, but it now appears he's prepared to abandon both objectives. Investors are cautiously optimistic that these might be the first signs of an emerging compromise that could end a brutal conflict that has led to the worst humanitarian crisis on the European continent since World War II.
Accelerating the selloff, United Arab Emirates indicated on Wednesday that the country wants to increase oil production and will encourage fellow members of the Organization of the Petroleum Exporting Countries to ramp up output. If the UAE convinces partners to turn on the spigots it would mark a turnaround for the cartel policy's gradual supply increase, which at its meeting last week agreed to increase production by only 400,000 barrels per day (bpd) in April, defying expectations for a larger supply hike. Saudi Arabia and the UAE are seen as the only two members within OPEC+ that could quickly boost production without logistical challenges.
Calls for higher OPEC+ quotas come as the United States, Canada and the United Kingdom banned imports of Russia's crude and natural gas, but Europe, which receives a great deal more Russian energy than the United States, has not. Still, sanctions on Russian banks and concerns about the ability to ship its oil have led to a shadow ban on the country's energy industry, drastically reducing the amount of Russian oil supplied to the global market. A number of Western energy companies, including ExxonMobil, Shell, British Petroleum, and Equinor have announced they are stopping operations in Russia and ending partnerships with Russian firms.
Energy Information Administration estimates that lower oil exports would shed 250,000 bpd off Russian's oil production this month and 500,000 bpd in April. Currently, Russia produces 11.3 million bpd of petroleum and other liquids.
Oil futures briefly trimmed losses after inventory report from the EIA that showed across-the-board draws from domestic petroleum stockpiles. Total crude and oil products supplies plunged by 8.1 million barrels (bbl) from the previous week, with 1.9 million bbl of the draw realized in commercial crude oil inventories. Oil stored at Cushing tank farm in Oklahoma, the delivery point for West Texas Intermediate fell by 585,000 bbl from the previous week to 22.2 million bbl, according to EIA.
The report was also supportive for refined products, showing commercial gasoline inventories fell by 1.4 million bbl and demand for motor gasoline surged by 219,000 bpd to 8.962 million bpd -- the second highest weekly rate since the start of the year. Distillate stocks fell by 5.2 million bbl to 113.9 million bbl, and are now about 18% below the five-year average, the EIA said. Analysts were expecting distillates inventories would fall by 1.9 million bbl from the previous week. Demand for distillate fuels jumped 137,000 bpd from the prior week to 4.587 million bpd -- the highest weekly demand rate since late January.
On the session, NYMEX April WTI fell $15 or 12% to $108.70 bbl, and ICE Brent May contract declined $16.84 for a $111.14 bbl settlement. NYMEX April RBOB futures fell 38.88 cents to $3.2938 gallon, and April ULSD futures plunged 97.30 cents or 20% to $3.4643 gallon.
Liubov Georges can be reached at email@example.com