DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled the last trading day of February with sharp gains. The moves followed an initial round of peace talks between Russia and Ukraine that concluded without an agreement to end the violence across the battered European country, as Russian President Vladimir Putin's forces continued their offensives on the country's two largest cities of Kiev and Kharkiv.

Multiple reports indicate that heavy shelling targeting civilian areas across Ukraine's largest cities resumed Monday after peace talks near the Belarusian border failed to produce a ceasefire agreement. Instead, both sides went back to their respective capitals for further consultations and agreed to continue talks later this week. Expectations for a ceasefire agreement at this point of the conflict were extremely low after Putin indicated on multiple occasions that he seeks capitulation of Ukraine's now-seated President Volodymyr Zelensky and to replace him with pro-Russian puppet.

Defiant posture from the Russians comes as their forces suffer heavy setbacks on the battlefield amid tougher-than-expected resistance that stalled their offensive. Pentagon officials, however, suggested that Russians, irritated by the slow progress on the ground may reconsider their tactics and become more aggressive. The United States also said they would impose additional sanctions against Russia since there has been no indication the Kremlin is willing to deescalate the situation.

The threat of additional sanctions follows some of the toughest economic measures by the European Union and the United States ever introduced against a major global economy, doing so in their efforts to stop Putin from destroying a neighboring country. Over the weekend, some Russian banks were banned from the Society for Worldwide Interbank Financial Telecommunications -- the global financial messaging service known as SWIFT -- and assets of Russia's central bank have been effectively frozen, limiting its ability to shore up its national currency, the ruble. The ruble collapsed to a record low against the U.S. dollar index on Monday, prompting a panic run on Russian banks and doubling of interest rates from the Russian Central Bank. The start of trading on Russia's stock market was delayed and then cancelled entirely, according to a statement from the country's central bank.

Until the invasion began, investors seemed confident the intensifying conflict and sanctions would not disrupt oil exports from Russia. This might be changing. Unprecedented move by the Western allies will no doubt erect major obstacles for Russian banks to process transactions for the country's oil and gas shipments.

Russia exports around 4.5 million barrels per day (bpd) of crude oil, which would be challenging to replace. The International Energy Agency estimates spare capacity held by the Organization of the Petroleum Exporting Countries is now 5 million bpd, and expects it to shrink below 3 million bpd in the second half of the year. This suggests OPEC does not have enough room to raise production to cover a shortfall in Russia's oil exports. Russia is also the world's largest exporter of natural gas. European gas prices jumped 33% overnight because of sanctions, further fueling worries of an energy crisis.

At this point, traders anticipate economic warfare between the United States and Russia will eventually disrupt global energy flows in one shape or another, even though both the U.S. and Russian governments insist this is not their intention. Goldman Sachs this morning revised its Brent crude oil price forecast to $115 per barrel (bbl) from $95 per bbl, with short-term risks skewed to the upside.

On the session, NYMEX West Texas Intermediate for April delivery added $4.13 to settle at $95.72 per bbl, and ICE Brent April futures expired at $100.99 per bbl, up $3.06 per bbl on the session, and the first settlement on the spot continuous chart above $100 per bbl since 2014. Next-month delivery Brent May contract settled the session with a $3.02 per bbl discount to April. March RBOB futures advanced 6.97 cents to expire at $2.7970 per gallon, with the next-month April contact settling at $2.9325 per gallon. NYMEX ULSD March futures expired at $3.0134 per gallon, surging 16.39 cents, and next-month April futures settled at $2.9313 per gallon.

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

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