DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Friday's session higher on a supply disruption in Turkey after a 7.8-magnitude earthquake halted operations at the major oil-export hub in Ceyhan on the Mediterranean Coast and Russian threats to cut oil production next month in retaliation for Western sanctions.

Russian supply risk was back as a front-and-center concern for traders after Moscow announced a unilateral 500,000-barrels-per-day (bpd) production cut for March, citing "destructive energy policies of the collective West."

On Feb. 5, European Union banned all imports of Russian refined products, including gasoline, diesel, and jet fuel, into the bloc, closing off a key export market for Russian refiners. The embargo is complimented with a G7 price cap on Russian petroleum exports that prohibit use of Western insurance and vessels unless sales fall under certain price limits. The measure mirrors similar price caps for Russian crude oil sales that have been in effect since early December.

Although traders do not expect Russian oil production to decline any further in the short-term, sanctions clearly forced the hand of many refiners and operators in the country to throttle back throughputs. Major forecasting agencies this week revised higher their estimates for Russian oil production this year and in 2024. The announced cut would press Russian oil output lower to between 10.3 million and 10.4 million bpd.

The fact that Russia chose to act unilaterally without a forward guidance to the market or OPEC+ members could be a canary in the coal mine for further price volatility. Additionally, Moscow's move would deepen a 2-million-bpd supply curb announced late last year by OPEC+, which Russia leads alongside Saudi Arabia. At a committee meeting earlier this month, ministers from the coalition saw no need to change their production limit, which lasts until the end of 2023. As of Friday morning, OPEC+ delegates said Moscow's decision to unilaterally reduce production would not change forward policy. The situation remains fluid.

Elsewhere, Turkey's export port of Ceyhan on the Mediterranean Coast remained closed on Friday after a 7.8-magnitute earthquake on Monday (2/6) struck the region, disrupting infrastructure and killing over 25,000 people. Turkish President Tayyip Erdogan estimated some areas affected by the disaster will be "uninhabitable for years."

Ceyhan port is the key export hub for Azeri, Kazakh, and Iraqi oil exports, processing around 1 million bpd. That accounts for roughly 1% of global oil supply. On Thursday, BP Azerbaijan declared force majeure on crude loadings along the Baku-Tbilisi-Ceyhan pipeline as further assessments are carried out on pipeline operations. Bloomberg News further reported that Azeri crude loadings towards the Turkish port are unlikely to restart until late next week. Wire services also reported that one or two storage tanks at the Ceyhan port might have sustained damages despite earlier assurances from Turkish officials that the port was unscathed by the earthquake. In absence of clear information, the disruption at the Ceyhan port will continue to support oil prices into next week, adding to concerns over available oil supply on the global market.

At settlement, WTI futures for March delivery climbed to $79.72 barrel (bbl), up $1.66, and the international crude benchmark Brent contract on ICE spiked to $86.39 bbl, up $1.89 bbl. NYMEX RBOB March contract advanced $0.0562 to $2.5037 gallon, and March ULSD futures added $0.0492 to $2.8646 gallon.

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