Oil Fades From Highs After Sanctions Leave Out Oil Exports

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- After a historic trading session that sent oil prices above $100 barrel (bbl) in reaction to Russia's pre-dawn invasion of Ukraine, oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday with gains of about 2% amid signs that the United States and European allies would not consider sanctioning Russia's oil and gas exports in an effort to ensure adequate supplies on the global market but instead go after its financial, military and industrial sectors.

Oil futures spiked more than 8% overnight after Russian President Vladimir Putin announced the beginning of a "special military operation" against Ukraine, a former Soviet state that had sought membership in the North Atlantic Treaty Organization in defiance of Moscow's objections. What started as an air-raid campaign in several Ukrainian cities quickly grew into a major offensive that gave Russia superiority over Ukrainian airspace in a matter of hours. Ukraine is a country of 44 million people occupying territory equal that of France. Kyiv, the Ukrainian capital, is now likely to fall within hours, according to U.S. intelligence, with Russian forces reportedly aiming to replace pro-Western Ukrainian President Volodymyr Zelensky with a government favorable to Russia.

Putin made his televised announcement before 6 a.m. local time, but Russians woke up to his speech repeated continuously on Russian stations through midmorning, while learning their currency, the ruble, fell to a historic low against the dollar. Some took to anti-war protests, but they were quickly dispersed by Russia's secret service. The Russian stock market crashed by as much as 45% before recovering slightly to close down 33%, wiping out about $70 billion off the value of Russia's biggest companies.

Without question, military conflict in the heart of Europe presents unprecedented risks for the global economy and geopolitical stability of the world. Russia remains one of the world's largest and most influential crude oil producers. Alongside Saudi Arabia, Moscow leads a group of 23 oil exporters known as OPEC+, which has gradually boosted global production to meet soaring demand. Russia alone exports 7.5 million barrels per day (bpd) of crude and petroleum products, with 2.3 million bpd of those volumes destined for Western Europe and the United States. It is also the single biggest exporter of natural gas.

Lost energy trade volume globally would lead to painful economic consequences for American and European consumers who are already struggling with spiking prices for gasoline and food. Russia is the world's leading exporter of wheat, with Ukraine the third largest exporter of the global staple food. Combined Russia and Ukraine account for 25% of global wheat production.

With that in mind, U.S. President Joe Biden announced a second tranche of punitive sanctions against Russia that covered four of its largest banks -- Sberbank, VTB, GPB and AlfaBank -- meaning Russian financial institutions are basically cut off from the U.S. financial system. U.S. and Western allies are also imposing new export controls, which Biden said will block more than half of Russia's high-tech imports and strike a blow to Moscow's military and technological capabilities. U.S. sanctions stopped short of banning Russian oil and gas industries or from cutting Russia off from the SWIFT (Society for Worldwide Interbank Financial Telecommunication) global payment system.

On the session, NYMEX West Texas Intermediate for April delivery settled $0.71 higher at $92.81 bbl after trading at $100.54 bbl, and international benchmark Brent finished just above $99 bbl, up $2.24, paring an overnight advance to $105.79 bbl. March RBOB futures added 4.57 cents to $2.7710 gallon, down from a $2.9149 overnight high, and front-month ULSD futures rallied 6.77 cents to $2.8969 gallon after trading at $3.0474 overnight.

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

Liubov Georges