DTN Oil

WASHINGTON (DTN) -- Crude and refined products futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday's session lower with the exception of the April ULSD contract after European leaders steered clear from joining the U.S., Canadian and U.K. governments in embargoing Russian oil and gas exports as a response to Moscow's aggression in Ukraine -- a move that would further exacerbate tightness on the global oil market by removing up to 3 million barrels (bbl) in daily crude oil shipments from Russia.

Investors are now grappling with a staggering supply loss out of Kazakhstan after a major pipeline carrying crude from the Tengiz, Kashagan and Karachaganak oilfields in central Asia to export ports on the Black Sea was throttled by Russia, citing extensive damage to the infrastructure of one of the ports. Kazakhstan Energy Minister Bulat Aqchulaqov confirmed on Thursday that closure of the Caspian Pipeline Consortium pipeline could last up to six weeks and affect as much as 1 million bbl in daily crude oil exports from Kazakhstan.

The pipeline capacity is estimated at 1.4 million barrels per day (bpd) or two-thirds of Kazakhstan total oil exports, making it a vital artery for the country's economy. Organization of the Petroleum Exporting Countries pegged Kazakhstan oil production close to 2 million bpd at the start of the year after antigovernment protests briefly shuttered operations at the country's major oil fields of Tengiz and Kashagan.

Faced with tight fundamentals, investors breathed a sigh of relief after European governments on Thursday made no mention of Russian energy exports during a summit among North Atlantic Treaty Organization members aimed at addressing Russian aggression in the Ukraine. For weeks, a potential ban of Russian oil to the European Union has been making headlines, but the consensus appears to be split for now. Countries that are less dependent on Russian oil, such as Sweden, Ireland, and the Czech Republic, view an oil ban as an option while some of the bloc's largest importers, like Germany and Netherlands, remain opposed to the idea. For perspective, Germany imported 490,000 bpd of crude oil and condensate from Russia last year, accounting for 21% of Russian imports into OECD Europe and second only to the Netherlands at 640,000 bpd.

Germany, the bloc's largest economy, already suffers from an economic slowdown triggered by surging natural gas and diesel prices that weigh heavily on its manufacturing sector.

"Business confidence has taken a hit, with the war in Ukraine and its impact on prices, supply chains and demand expected to have repercussions for growth over the remainder of the year," said Phil Smith, economics associate director at S&P Global.

Economic growth in the European Union slowed markedly in March as the economic impact from the Russian invasion of Ukraine offset a boost to demand from the further reopening of the economy from COVID-19 restrictions. The headline S&P Global Eurozone Composite PMI fell from 55.5 in February to 54.5 in March, according to preliminary estimates. The decline indicates some loss of economic growth momentum from February's five-month high, but still signals the second-strongest expansion since November.

As Russia continues its assault on Ukraine, millions of barrels of Russian oil are still finding a way to buyers despite import bans by the United States, United Kingdom and Canada, and self-imposed sanctions on buying Russian oil by companies like BP, Shell, Total, Chevron and ExxonMobil. It currently remains unclear how much Russian oil will be removed from the global oil market by these embargos.

Some analysts suggest discounted Russian oil is still bought for commercial storage in Europe, China and India, where it can be rebranded and resold to refiners that avoids the reputational risk associated with directly purchasing Russian cargos. Others suggest Russian oil exports would immediately collapse by 2 million to 3 million bpd beginning next month as the risk associated with purchasing Russian oil will prove too much to bear for Western buyers. So far, combined exports of crude and products appear to be running at normal levels, with Baltic port activity at 1.55 million bpd and the Black Sea at 325,000 bpd.

On the session, NYMEX May West Texas Intermediate futures fell $2.59 bbl to $112.34 bbl, and ICE May Brent futures declined to $119.03 bbl, down $2.57. NYMEX April RBOB futures fell 4.90 cents to $3.3897 gallon, and April ULSD futures advanced 3.86 cents to $4.1534 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com