DTN Oil

WASHINGTON. D.C. (DTN) -- Oil futures closest to expiration on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange were little changed early Friday, following a rally triggered by the U.S. Treasury's renewed enforcement measures on Russian oil sales while products were supported by the low refinery utilization in the United States.

All petroleum contracts are on track for weekly gains after the U.S. Treasury Department imposed sanctions on four entities and identified one vessel as "blocked property" in what it said was a network in a "price cap violation scheme in late 2023."

The coalition of G7 countries set a price cap of $60 bbl on Russian oil exports in December 2022 with the goal of reducing Moscow's revenue for its invasion of Ukraine in February 2022 while keeping its oil flowing to avoid a global shortage that would stoke inflation. Today's action involved United Arab Emirates-based Zeenit Supply and Trading DMCC that "sold Russian Urals crude oil in November 2023 that was priced at over $80 per barrel that it delivered using the vessel NS Leader." The tanker, registered in Liberia, "made five port calls in Russian ports in 2023."

Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson said, "Today's action against vessels violating the price cap on Russian oil should serve as a continued warning that we can and will enforce violations of the cap."

The enforcement action added to a reaccelerating geopolitical risk premium in oil prices that had eased late last week on hopes a ceasefire agreement in the Israel-Hamas War in Gaza would be reached. Instead, Israel rejected the latest proposal in what Prime Minister Benjamin Netanyahu called "delusional" demands by Hamas leadership, with Israel's position appearing to harden. Additionally, the United States killed the commander of the Iranian-backed Kataib Hezbollah militia in Baghdad in a drone attack Wednesday in retaliation for a drone attack by the militants on a U.S. base in Jordan that killed three U.S. service members.

The geopolitical incidents bolstered crude prices despite building inventory in the United States amid low refinery utilization. The Energy Information Administration on Wednesday reported commercial crude inventory increased for a second week through Feb. 2, up 6.754 million bbl since Jan. 19, building in large part due to a falloff in refinery runs. The U.S. refinery run rate was 82.4% of capacity during the week ended Feb. 2, a 13-month low, and will likely continue to slip amid an unplanned outage at BP's 435,000 bpd Whiting Refinery located in northern Indiana.

BP said it was making progress in restoring normal operations at the refinery, the largest in the Midwest, while a Reuters report suggested the refinery could be shut for as many as three weeks as it investigates the cause of a power outage that forced a systemwide shutdown. In PADD 3, the refinery run rate continued lower for a fourth consecutive week through Feb. 2, declining to 77.1% utilization -- a 29-month low.

The falloff in refinery runs prompted gasoline stocks to be drawn down for the first week in six, down 3.146 million bbl from a 35-month high 254.134 million bbl. Distillate stocks fell for the third straight week through Feb. 2, down 7.179 million bbl or 5.3% since Jan. 12 to 127.574 million bbl, widening a stock deficit against the five-year average to 9.564 million bbl or 7%.

Bank of America Global Research said in a note to clients that winter refinery maintenance appears to be the highest in several years, and "expect to clean up elevated winter grade [gasoline] inventories."

Near 7:45 a.m. EST, NYMEX West Texas Intermediate March futures were little changed near $76.13 bbl, and international crude benchmark Brent for April delivery slipped $0.21 to trade near $81.42 bbl. March RBOB futures slipped $0.0057 from an 11-week high $2.3420 gallon, up $0.0790. March ULSD futures were little changed near $2.8925 gallon.

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