Oil Futures Gain on Prospect of Deeper Russian Sanctions

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 advanced in pre-inventory trade Wednesday as market participants monitored the political response from the West to reports of Russian atrocities against the civilian population in Ukraine that have now extended to sanctions on Russian coal imports, a blockade of Russian vessels and trucks from entering European ports, as well as a ban on any new investments in the country.

Following the discovery of civilian murders and other atrocities in Ukrainian towns abandoned by retreating Russian forces, the United States and European Union are coordinating a fresh round of sanctions against Moscow that have now extended into the energy sector. Until now, the EU has avoided targeting energy trade with Russia, which is sensitive to European economies, but that stance might have changed.

European Commission President Ursula von der Leyen said on Tuesday that the bloc proposed a ban on $4.3 billion worth of Russian coal imports per year as part of a fifth package of sanctions designed to further diminish Russian President Vladimir Putin's war chest. Other proposals target Russian technology and manufacturing imports, worth another $10.9 billion. After sanctioning coal imports, Russia's oil and gas exports could be next.

"Yes, we've now banned coal, but now we have to look into oil," added Von der Leyen said.

The continent received 57 million tons of Russian coal in 2021 compared to 31 million tons for China, International Energy Agency data shows. This amounted to more than half of Europe's coal imports that year, according to Eurostat.

The German economy will be hard hit by the proposed restrictions, with about half of Germany's imports hard coal, and about one-third of its oil imports originating in Russia. In total, Germany depends on Russia for about one-third of its total energy consumption. Should Germany cut off Russian gas imports, it would mostly affect the industrial backbone of the German economy -- a step politicians have been reluctant to take. Underscoring those risks, German industrial orders fell 2.2% in February amid supply shortages, exploding energy prices and uncertainty linked to Russia's invasion of Ukraine.

February's dip gives a "first taste of how the war in Ukraine and new uncertainties will affect the German economy", tweeted ING bank economist Carsten Brzeski.

Domestically, American Petroleum Institute late Tuesday reported commercial crude oil stocks increased 1.080 million bbl last week, missing calls for a draw of 1.6 million bbl. Inventories at the NYMEX delivery point for West Texas Intermediate futures in Cushing, Oklahoma, posted a build of 1.791 million bbl. Gasoline stockpiles fell 543,000 bbl in the week ended April 1, above estimates for a 200,000 bbl decline. API data show distillate inventories rose 593,000 bbl, missing calls for a decrease 200,000 bbl.

Gasoline demand in the United States increased 1.8% last week, according to DTN Refined Fuels Demand data, and diesel demand increased 4.5% from the prior week. Data further showed total U.S. gasoline demand up 3.6% year-on-year for the week-ended April 1 and up 2.3% from the same week in 2019. Total U.S. diesel demand was up 3.9% year-on-year for the week and 2.9% above the demand rate for the comparable week in 2019.

Near 7:30 a.m. ET, NYMEX May WTI futures advanced $1.38 to $103.38 bbl, and the ICE June Brent contract rallied to $108 bbl, up $1.42. NYMEX May ULSD futures surged 8.97 cents to $3.5579 gallon, and the May RBOB contract gained 3.43 cents to $3.1996 a gallon.

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

Liubov Georges