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Oil futures traded lower Wednesday, pausing after a push to nearly 14-year highs in the previous session when President Joe Biden banned U.S. imports of Russian energy, upping pressure on Moscow over its decision to invade Ukraine.
Price action
-
West Texas Intermediate crude for April delivery
CL00,
-5.18% CLJ22,
-5.18%
fell $5.74, or 4.6%, to $117.96 a barrel, after ending Tuesday at its highest since Aug. 1, 2008. -
May Brent crude
BRN00,
-5.33% BRNK22,
-5.33% ,
the global benchmark, fell $6.42, or 5%, to $121.56 a barrel. It ended Tuesday at its highest since July 22, 2008. -
April natural gas
NGJ22,
+0.62%
traded at $4.571 per million British thermal units, up 1%. -
April gasoline
RBJ22,
-3.93%
fell 3.9% to $3.539 a gallon and April heating oil
HOJ22,
-13.08%
dropped 12.8% to $3.871 a gallon.
Market drivers
Crude has soared since Russia’s Feb. 24 invasion amid volatile trading action.
Biden announced a ban on Russia oil, liquefied natural gas, and coal imports on Tuesday. Russia is the world’s second-biggest petroleum exporter and usually exports 4.5 million barrels of crude and 2.5 million of oil-products each day. However, last year only about 8% of U.S. imports of oil and petroleum products came from Russia. Last year, the U.S. imported nearly 700,000 barrels per day of crude oil and refined petroleum products from Russia, the White House said Tuesday.
While crude was giving back some of its recent gains Wednesday, analysts said activity is likely to remain volatile, with crude set to extend its push toward all-time highs or beyond if Western allies join Washington in banning Russian energy imports.
“It would create 4.3 million barrels per day hole in the market that simply cannot be quickly replaced by other sources of supply,” said Bjørnar Tonhaugen, head of oil markets at Rystad Energy, in a note.
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In that scenario, oil prices “must therefore rise to destroy sufficient demand and incentivize a supply response through higher activity — both of which happen with a time lag of several months — to rebalance the market at a higher supply/demand/price intersection,” he said.
While not the most likely scenario, Tonhaugen estimated that if Russian oil exports to the West were halted by April, with only China and India keeping current import levels intact, Brent would need to hit $240 a barrel by summer to destroy demand.
Data
On Wednesday, the Energy Information Administration reported that U.S. crude inventories fell by 1.9 million barrels for the week ended March 4.
On average, the EIA was expected to show crude inventories down by 700,000 barrels, according to analysts surveyed by S&P Global Commodity Insights. The American Petroleum Institute on Tuesday reported a 2.8 million-barrel increase, according to sources.
The EIA also reported weekly inventory declines of 1.4 million barrels for gasoline and 5.2 million barrels for distillates. The analyst survey showed expectations for weekly supply declines of 2.2 million barrels for gasoline and 1.8 million barrels for distillates.
The EIA data showed crude stocks at the Cushing, Okla., Nymex delivery hub edged down by 600,000 barrels for the week.
Separately, a survey from S&P Global Commodity Insight showed members of OPEC+ — the Organization of the Petroleum Exporting Countries and their allies —- with output quotas pumped 38.38 million barrels a day in February. That was still 764,000 barrels per day short of their collective production targets.
