DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange swung between modest gains and losses early Monday as investors awaited key rate decisions from global central banks later this week, as well as the meeting among OPEC+ producers ahead of the EU embargo on Russian fuel exports. Russia plans to increase its diesel exports next month despite the EU ban on its fuel shipments and G-7 price cap that goes into full force on Feb. 5. Shipments of diesel fuel from Russia's key Baltic and Black Sea ports surged above 2.5 million tons in January, according to industry data, some 8% above December's flows as buyers scooped up volumes on fears over potential shortages later this year. Europe, in particular, is vulnerable to such disruptions as its energy market is structurally short on middle distillates and relies heavily on imports. As of early 2023, Europe still sourced 1/4 of its middle distillate supplies from Russia.

Faced with this dilemma, the EU ministers, together with G-7 partners, are reportedly set to approve a higher price cap to import Russian diesel for third countries in an attempt to keep Russian diesel flowing to the market. The discussed price ceiling is somewhere in the range of $100 - $110 barrel (bbl). For context, diesel futures in northwest Europe are currently trading at about $130/bbl, according to ICE Futures Europe data. With Russian supplies already trading at a large discount from elsewhere, the impact of a $100/bbl price cap would not be as disruptive as previously feared.

The blueprint for the price cap appears to follow similar measures already applied to Russian crude exports that have so far resulted in little interruption of Russian crude shipments.

Some analysts, however, believe the price cap could still result in dislocations within the Russian refining sector that will lead to a large drop in its oil output later this year. The U.S. Energy Information Administration in its latest forecast estimated Russian oil production could fall as much as 1.5 million barrels per day (bpd) because of the cumulative impact of the sanctions.

Against this backdrop, OPEC+ ministers are set to meet on Wednesday for the Joint Ministerial Monitoring Committee to evaluate supply-demand balances on the global market. The group, which consists of 23 oil-producing countries, stuck to a production cut of 2 million bpd in December and has given little indication that the accord could be changed anytime soon. Markets expect OPEC+ to keep production quotas unchanged at this week's meeting but will pay close attention to follow-up commentary on the group's next step.

Near 7.30 a.m. EST, West Texas Intermediate futures for March delivery traded little changed near $79.70/bbl, and Brent March futures on ICE were near $86.70/bbl. NYMEX RBOB February contract dropped back $0.0149 to $2.5737 gallon, and front-month ULSD futures were unchanged near $3.2658 gallon.

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