DTN Oil

WASHINGTON (DTN) -- After muted overnight trade, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced early Monday as ongoing supply concerns tied to the Russian invasion of Ukraine, where the use of brutal force against civilians renewed calls for tougher sanctions on Russian energy exports, are countered by the adverse demand impact from a COVID-19 resurgence in China.

Further capping the upside, International Energy Agency on Friday agreed to a coordinated release of oil from strategic petroleum reserves by the 31-country organization, which follows the March 31 announcement from the United States of a planned record SPR release. U.S. President Joe Biden announced the release of 1 million bpd of SPR crude oil over the course of six months that is designed to bridge the supply gap created by the loss of Russian oil exports until domestic producers can meaningfully ramp up output. The United States is an IEA member.

U.S. oil production currently stands at 11.7 million bpd, 1.3 million bpd below pre-pandemic high of 13 million bpd. U.S. Energy Information Administration estimates that domestic production could rise to 12 million bpd buy the end of 2022 and then back to 13 million bpd in 2023.

Separately, authorities in China's financial capital of Shanghai extended a lockdown originally scheduled to last 10 days for an undetermined period following recent shutdowns in Shenyang and at the country's tech hub in Shenzhen. Shanghai, China's most populous city with some 25 million inhabitants, has largely been at a standstill as China battles its worst wave of coronavirus infections since the start of the pandemic. China's economy has taken a gut punch from the recent COVID-19 resurge, with fresh data on China's manufacturing showing business activity for the sector fell into contraction last month.

In the United States, manufacturer activity continues to grow, but the business sector suffers from similar issues as their global competitors, albeit to a lesser degree due to plentiful domestic natural gas and oil production. Chaos in global supply chains and elevated commodity prices still weighed heavily on U.S. industrial output in March, showed data from the Institute of Supply Management.

"March brought back increasing rates of price expansion, due primarily to instability in global energy markets. Suppliers are not waiting to experience the full impacts of price increases before negotiating with their customers," said Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management Manufacturing Business Survey Committee.

Underlining gains in the oil complex, Biden administration officials are in discussions to intensify economic sanctions against Russia as evidence emerges of the apparent execution of civilians in Bucha, a suburb of the Ukrainian capital of Kyiv. U.S. State Department spokesperson Ned Price hinted U.S. action against Russia is coming "very soon" when asked about Ukrainian President Volodymyr Zelensky's request for greater G7 sanctions in response to the latest alleged atrocities.

Reports of civilian massacres in Bucha led Ukrainian officials to ask for independent investigation by the International Criminal Court into mass graves in Bucha that NATO Secretary General Jens Stoltenberg called "brutality against civilians we haven't seen in Europe for decades."

Germany's defense minister Christine Lambrecht said the European Union should finally consider banning Russian oil and gas imports.

"There has to be a response. Such crimes must not remain unanswered," the defense ministry quoted Christine Lambrecht as saying in an interview with the public broadcaster ARD.

Berlin has so far resisted calls to impose an embargo on energy imports from Russia, saying its economy and that of other European countries are too dependent on them. Russia supplies 40% of Europe's gas needs.

The prospect of new sanctions kept markets muted in Europe, where a benchmark reading of consumer sentiment fell to the lowest levels since August 2020 amid the region's record-high inflation and COVID overhang.

Near 7:30 a.m. ET, NYMEX May West Texas Intermediate futures advanced $1.03 to $100.28 bbl, and the ICE June Brent contract surged $0.86 to $105.26 bbl. NYMEX May ULSD futures rallied 9.43 cents to $3.5179 gallon, and the May RBOB contract jumped 2.06 cents to $3.1741 gallon.

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