OIL FUTURES: NYMEX crude, ICE Brent prices soar on talk of Russian oil ban

Crude futures rallied on the open late March 6 on news that the Biden administration is discussing with its European allies a potential ban on Russian oil imports in response to Russia's military invasion of Ukraine.

ICE front-month Brent rallied $21.02 to $139.13/b before slipping to trade at around $129.90/b at 2310 GMT.

NYMEX front-month crude rallied $14.82 to $130.50/b and pulled back to trade around $126/b at 2310 GMT.

"We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil while making sure that there is still an appropriate supply of oil on world markets," US Secretary of State Antony Blinken told CNN's Jake Tapper March 6 on State of the Union. "That's a very active discussion as we speak."

Blinken also acknowledged that the US is adding sanctions on Russia "virtually every day" in coordination with its European partners.

Widespread secondary sanctions, like those imposed on Iran, could be aimed at Russia's 7 million b/d of oil exports, 4.5 million b/d of which is crude.

Russian crude exports could fall by 1 million-2 million b/d this month as a result of sanctions on Moscow and as the market voluntarily suspends purchases, according to analysis by S&P Global Commodity Insights.

Oil and gas have been carved out of primary sanctions imposed on Russia by the US and Europe, with the US Treasury Department explicitly saying it is permitting Russian energy transactions.

But a ban on Russian oil imports is gaining bipartisan support in the US. The Ban Russian Energy Imports Act introduced March 3 by the US Senate would prohibit imports of Russian crude oil, LNG, coal, petroleum and petroleum products, and has received bipartisan support.

On March 1, the UK government banned Russian-owned oil tankers from docking in the country, and Canada announced a ban on oil imports from Russia on Feb. 28

Some buyers have already turned away from Russian barrels due to limitations in sourcing shipping insurance and letters of credit stemming from the financial sanctions already in place. The reputational risk is also high.

Traders and refiners are also hesitant as the US and EU have said stronger sanctions targeting Russia's oil and gas remain on the table.

As a result, Russian Urals crude has been trading at deep price discounts to Brent crude. Rotterdam Urals was assessed at a record low $27.87/b discount to Dated Brent March 4, according to S&P Global Commodity Insights. That was down from a $1.85/b discount Feb. 1.

Russian crude flows to US decline

Imports of Russian oil to the US have fallen this year. On a four-week moving average, the US imported 84,000 b/d of Russian crude as of Feb. 28, according to US Energy Information Administration preliminary data. That was down from a recent peak of 362,000 b/d the week ended June 11.

The EIA does not report weekly refined products imports by country of origin. The US imported 472,000 b/d of refined products from Russia in 2021, primarily to the US Gulf Coast.

Those imports into the USGC are primarily unfinished oils, likely fuel oil and various feedstocks.

Imports from Russia have risen in recent years as US sanctions have taken Venezuelan heavy crudes off the market.

According to media reports, US officials began meeting with Venezuelan officials in Caracas this weekend in the hopes of easing sanctions and allowing more Venezuelan crude on the market.

State-owned PDVSA and its foreign partners produced an average of 680,000 b/d of crude in February, according to internal daily production reports reviewed by S&P Global Commodity Insights.