WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell in early trade Wednesday, with the international crude benchmark briefly sliding below $96 per barrel (bbl) after Western sanctions against Russia stopped short of including oil and gas exports, with oil traders now waiting for Russian President Vladimir Putin's next move after he recognized the separatist regions of Donbass and Lugansk in eastern Ukraine and moved his troops across the Ukrainian border.
The markets are in a waiting mode now to see how far Russia's 190,000 troops will go into Ukraine after the Russian Parliament gave Putin the greenlight to use troops outside of country. The central question is whether he will stop with two pro-Russian republics in eastern Ukraine or order his troops to capture Kiev, Ukraine's capital.
The current news flow is not encouraging, with the Russian government ordering the evacuation of all its staff in Kiev. Ukrainian President Volodymyr Zelensky called on military reserves to face off with the Russians, and Putin himself suggested that Russia recognized the two breakaway republics in their "expanded version."
For reference, Donbass and Lugansk are currently divided into two parts -- Russian and Ukrainian -- with the Ukrainian military in control of about two-thirds of the territory. This includes a strategic seaport of Mariupol that is home to Ukraine's largest steel mills and its biggest machine-building company that produce much of the country's exports.
Depending on Putin's next move in the Ukraine, U.S. and European allies may consider an additional round of sanctions on top of the measures already announced in response to Russia after Moscow recognized the two republics as independent from Ukraine. So far, the sanctions package does not target Russian oil and gas exports or the economy, but instead restricts access to capital markets for certain Russian banks and individuals. Among the tougher measures announced this week, Germany suspended approval of the Nord Stream 2 pipeline which was completed last year and has awaited European Union regulatory approval since late November. The $11 billion pipeline designed to carry Russian gas under the Baltic Sea to northern Germany would sharply increase the share of Russian gas consumed in Europe.
Additionally, the Biden Administration announced a total economic embargo on the newly recognized republics of Donetsk and Lugansk in eastern Ukraine, while warning that the world might be seeing "the beginning of a Russian invasion."
A rather mild package of Western sanctions suggests that U.S. and European allies still hold tougher measurements in reserve to convince Putin to abandon his military adventures in the former Soviet satellite. According to estimates, about 2.3 million barrels per day (bpd) of Russian crude heads west each day, which sanctions could threaten.
This comes at the time when the global economy needs every barrel of oil. The current deficit on the global markets exceeds 1 million bpd, according to analysts, with OPEC+ consistently missing their production targets in recent months. Vitol CEO Russel Hardy said supply shortfalls, rather than geopolitical tensions, were the primary driver in current prices and that Brent could be set for a "prolonged period" above $100 bbl over the next six to nine months.
Near 7:30 a.m. EST, NYMEX West Texas Intermediate for April delivery fell $0.51 to $91.35 bbl, while international crude benchmark Brent softened $0.44 to $96.40 bbl. March RBOB futures added 0.5 cents to $2.7158 gallon, and front-month ULSD futures dropped 2.48 cents to $2.7940 gallon.
Liubov Georges can be reached at firstname.lastname@example.org