DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange gained ground Friday afternoon, although all petroleum contracts registered losses for a second consecutive week. The moves came after announcements of planned oil releases from strategic reserves by the United States and International Energy Agency countries eased near-term concerns over supply availability tied to sanctions on Russian crude exports.

China's largest refiners -- Sinopic, PetroChina and CNOOC, among others -- are staying on the sidelines as they avoid buying Russian cargoes for May loadings, according to wire service reports, adding pressure on Russia's energy complex reeling from Western sanctions. While state-owned refiners refrain from purchasing new Russian cargoes, independent "teapot" refineries in China continue to scoop up the discounted cargoes amid limited exposure to international markets. Russia's flagship Urals crude is being offered at a historic discount of $35 bbl against the international benchmark Brent contract, effectively bringing the price to its pre-war levels.

India, another large buyer of Russian oil, may soon face tougher pressure from the international community to sever ties with Russia after the Biden administration warned New Delhi not to align itself too closely with Moscow.

Traders are closely monitoring the political response in the West and Asia to the conflict in Ukraine that is quickly descending deeper into a bloodbath. On Friday, the European Union announced a fifth package of Russian sanctions that includes a phased-out ban on imports of Russian coal with EU leaders warning that the next step would be oil and gas.

It is increasingly clear Russia's energy industry will suffer a heavy blow from Western sanctions that have already shaved off between 4% and 5% from Russian oil production, according to Russia's Deputy Prime Minister Alexander Novak, meaning the loss of roughly 500,000 to 600,000 barrels per day (bpd) of output. The Organization of the Petroleum Exporting Countries in its most recent Monthly Oil Market Report estimated Russian oil production averaged 11.45 million bpd, although Moscow itself failed to publish monthly production figures.

"Logistics, as well as financial problems associated with insurance and the use of ships are changing," Novak told reporters, according to the Prime news agency. "Therefore, we will have an adjustment in April. There will also be adjustments to refining, there will also be a decrease in refining volumes," he said, adding that he does not expect the reductions to affect domestic supplies, and that exports would continue.

IEA estimates Russian crude and petroleum products exports would plummet between 2.5 million and 3 million bpd this month from 7.8 million bpd in February.

Further weighing on the complex this week is more evidence of China's economic slowdown after authorities in the nation's largest city, Shanghai, extended a citywide lockdown into the end of April as COVID-19 cases there reset record highs. Shanghai reported more than 13,000 daily COVID-19 cases on Thursday, the highest tally of any Chinese city since the beginning of the pandemic more than two years ago.

The World Bank and some investment banks have recently warned the economic damage caused by China's zero-COVID policy is growing, with China the world's second-largest economy. The World Bank on Tuesday slashed China's 2022 growth forecast, estimating gross domestic product would grow 5% this year, down sharply from last year's 8.1% expansion rate. That's also lower than China's official target of about 5.5%.

Separately, the 31-member nation IEA agreed this week on a 60 million barrel (bbl) release from emergency reserves over a six-month period that comes on top of a planned 180 million bbl announced SPR release by the United States.

"The unprecedented decision to launch two emergency oil stock releases just a month apart, and on a scale larger than anything before in IEA's history, reflects the determination of member countries to protect the global economy from the social and economic impacts of an oil shock following Russia's aggression against Ukraine," said IEA Executive Director Fatih Birol.

The two IEA collective actions this year of 62.7 million bbl, agreed upon on March 1, and the latest 120 million bbl that include the emergency reserves held by the U.S. amount to 9% of total emergency reserves.

On the session, NYMEX May West Texas Intermediate futures gained $2.23 to $98.26 per bbl, and the ICE June Brent contract rallied to $102.78 per bbl. NYMEX RBOB advanced 9.18 cents to $3.1316 per gallon, and NYMEX ULSD rallied 4.98 cents to $3.3176 per gallon.

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

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