Oil Surges 25% Week Over Week as Russian Oil Shunned, Saudi OSP Hike

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange accelerated gains in afternoon trade Friday, sending the U.S. crude benchmark closing price above $115 per barrel (bbl) for the first time since September 2008. The gains followed reports suggesting the Biden administration is weighing a ban on Russian oil imports in response to escalating violence in Ukraine, with traders estimating around 2.5 million barrels per day (bpd) in Russian oil shipments have already been shut-in by a reluctance from traders and banks to deal with Russian oil.

Further boosting the complex, Saudi Arabia oil giant Aramco raised its official selling price for its flagship Arab Light crude for all major markets for April. For Asian refiners, OSP was lifted $2.15 from the previous month to $4.95 per bbl, while prices for U.S. buyers were raised by $1 to $4.80 per bbl. In northwestern Europe, Aramco boosted OSP to $4.30, up $2.10 from the previous month.

Saudi price move comes as Western oil and gas companies raced to distance themselves from Russia in the wake of an unprovoked invasion of Ukraine. The list of companies fleeing Russia's energy complex have now expanded to ExxonMobil, Chevron, Shell, and British Petroleum, as investors increasingly view Russian business as toxic. J.P. Morgan estimates that nearly 70% of Russian oil is currently struggling to find buyers, closing off around 2.5 million bpd of the country's oil exports. Some analysts think that figure could be as high as 4 million bpd.

Russia's current oil production is around 11 million bpd, of which around half is exported. Any material shortfall from Western sanctions imposed on production could not be quickly replaced by OPEC+ spare capacity. OPEC+ in recent months has consistently underproduced output targets, falling more than 900,000 bpd short of its quota in January.

Russia is now under a severe economic embargo that sent its national currency, the ruble, in freefall, crushed its stock market, and spiked inflation in a matter of days. Russia's Central Bank said on Friday the Moscow stock exchange was closed for a fourth day in a row without plans to reopen anytime soon.

Sanctions, however, have so far done little to change Russian President Vladimir Putin's strategy in Ukraine, with reports suggesting shelling against civilians is getting progressively worse. Several major Ukrainian cities, including Kiev, Kharkiv, Mariupol and Odessa, have been encircled by the Russian military, trapping over 5 million people, and creating a humanitarian catastrophe. On Friday, Russian troops assaulted the Zaporizhzhia nuclear power plant containing six reactors with each generating 950 megawatts and a total output of 5.7 MW.

Active combat at the site of nuclear power generation raised the alarm from Berlin to Washington, D.C. As of 5 a.m. EST, Ukrainian officials said Russians seized the facility, and the fire was extinguished. Grossi said at a news conference today, "There has not been a release of radioactive material and the integrity of the reactors has not been compromised," but added that the situation remains "extremely tense and challenging."

Against this backdrop, U.S. President Joe Biden is considering a formal ban on Russian oil imports in response to escalating violence, according to a Bloomberg report. A bipartisan bill unveiled this week by U.S. Senators Joe Manchin, D-W.Va., and Lisa Murkowski, R-Alaska, would do just that.

Russia exported just 90,000 bpd of crude oil into the United States in December, according to the most recent U.S. government statistics. That fades in comparison with oil shipments the U.S. gets from Iraq at a daily rate of 223,000 bbl, Saudi Arabia at 472,000 bbl, and Mexico 492,000 bbl, let alone the 4.1 million bbl imported from Canada each day.

Some U.S. refineries use unfinished Russian oil, blending it with other barrels to produce gasoline, jet fuel, diesel, and other products. But even by that broader measure, Russia is far from a huge player in the United States. Russia exported just 405,000 bpd of crude oil and petroleum products into the United States in December. That represents less than 5% of total U.S. crude oil and product imports.

On a session, NYMEX April West Texas Intermediate rallied $8.01 to settle at $115.68 per bbl, and ICE Brent May contract advanced $7.65 to $118.11 per bbl. NYMEX April RBOB futures surged 25.96 cents to $3.5440 gallon, and April ULSD futures spiked 27.29 cents to $3.7763 gallon.

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

Liubov Georges