Crude oil futures extend rally on Russian oil ban talk despite EU pushback

Crude oil futures continued rising in mid-morning Asian trade March 8 in the wake of reports that the Biden administration was discussing a potential ban on Russian oil imports, even as its European allies moved to tone down the threat.

At 10:45 am Singapore time (0245 GMT), the May ICE Brent futures contract was up $2.17/b (1.76%) from the previous close at $125.38/b, while the April NYMEX light sweet crude contract was 90 cents/b (0.75%) higher at $120.30/b.

The EU leaders' reluctance for a ban on Russia oil imports calmed some nerves after the week kicked off with oil prices skyrocketing to 13-year highs on news of a potential US-coordinated ban on Russia oil imports.

"Europe has deliberately exempted energy supplies from Russia from sanctions," Germany's Chancellor Olaf Scholz said March 7 in response to calls for tougher energy sanctions. "Supplying Europe with energy for heat generation, mobility, electricity supply and industry cannot be secured in any other way at the moment," he added.

Germany, Europe's biggest oil market, is heavily dependent on Russian energy, which accounts for about half its gas and coal imports and more than one-third of its oil imports.

British Prime Minister Boris Johnson reiterated that potential curbs on Russian oil and gas exports remain "on the table," but acknowledged that some countries were reliant on Russian energy imports.

Russia's Deputy Prime Minister Alexander Novak said on state television broadcast March 7 that Russia could cut natural gas supplies to Europe in retaliation to any Russian oil import ban.

"Commodities remain in the crosshair as a political tool, where the risk of supply disruption is becoming increasingly pronounced," IG market strategist Yeap Jun Rong said in a note March 8.

Russia exports more than 7 million b/d of crude and petroleum products, equating to around 13% of total oil trade. Europe is particularly dependent, receiving about 2.7 million b/d to the total.

Meanwhile, OPEC sources told S&P Global the group had no plans for an emergency meeting to address the current surge in prices.

"We have no control over current events as geopolitics have overtaken the market," OPEC Secretary General Mohammed Barkindo said at the CERAWeek by S&P Global conference in Houston March 7. "All we can do is stay the course of our decisions."

The OPEC+ coalition has largely stood by its alliance with Russia through the war with Ukraine, sticking with its plans for measured monthly output increases of 400,000 b/d. The next OPEC ministerial meeting is March 31.

Elsewhere, the US has sent officials to Venezuela to discuss energy security and detained US citizens after media reports indicated the Biden administration was in the early stages of considering lifting oil sanctions against the Maduro regime.

"Oil prices over $100 throughout the summer will become a bigger drag on the economy than the market is expecting," Edward Moya, senior market analyst at OANDA, said in a note March 8.

"The Biden administration is pinning hopes that some agreements can be made with both Iran and Venezuela that could bring some much-needed supply to the markets. With no breakthrough with Iran nuclear deal talks, oil prices will continue to grind higher," he added.