OIL FUTURES: Prices recede from highs after Russia announces supply ban

Crude futures came off their highs Dec. 27 following news that Russia will ban oil supplies for five months to countries observing the $60/b price.

NYMEX front-month crude settled at $79.53/b, down 3 cents, while ICE front-month Brent settled at $84.33/b, up 41 cents.

In refined products, NYMEX front-month RBOB settled at $2.3602/gal, down 2.34 cents, and NYMEX front-month ULSD settled 8.76 cents higher at $3.3537/gal.

Crude futures had rallied to a three-week high Dec. 23, prior to the long holiday weekend, after Russian Deputy Prime Minister Alexander Novak said Russian oil output may fall 500,000-700,000 b/d as a result of sanctions on crude and oil products into the EU and the $60/b price cap on Russian oil.

Prices continued to climb Dec. 27, with NYMEX crude hitting an intraday high of $81.18/b, and ICE Brent hitting $85.60/b.

Prices slipped, however, once Russia announced it would ban crude supplies to countries observing the price cap from Feb. 1, according to an order Russian President Vladimir Putin signed Dec. 27.

Price Futures Group analyst Phil Flynn said the order was too vague to keep crude prices elevated. "It's not going to happen until Feb. 1," he said, which gives traders a bit of wiggle room.

Also, it is unclear if Russia would really cut supplies considering that Russian Urals is already trading well below the $60/b price cap. Platts assessed Urals at $42.665/b Dec. 23, $38.22/b under Dated Brent. Urals was not assessed Dec. 27 because of a holiday.

The Russian order said supplies would be "prohibited if contracts for these supplies directly or indirectly provide for the use of a price-fixing mechanism."

Analysts at S&P Global Commodity Insights forecast Russian supply declines to peak at 900,000 b/d below pre-war levels in February-March, which was a significant revision from its previous estimate of 1.5 million b/d last month.

Crude futures were supported earlier in the day as China eased quarantine rules for overseas arrivals, fueling hopes of the re-opening of its borders.

"We believe that the reopening in China (the world's second-largest consumer) should help offset weaker demand in the US and Europe, resulting in a modest rise in global oil demand," SPI Asset Management Managing Partner Stephen Innes said in a Dec. 27 note.

China's National Health Commission reported Dec. 26 it would no longer conduct nucleic acid tests and centralized quarantine for all inbound travelers starting Jan. 8. Travelers arriving in the country would only be required to obtain a negative COVID test result within 48 hours of departure, local media reported.

A drop in US Gulf Coast refinery runs helped to bolster ULSD futures.

Area refiners began shutting units or were running on circulation late last week as below-freezing temperatures swept over the region, impacting roughly 3 million b/d of refining capacity.

However, the reduction in operations is expected to be short-lived, as temperatures in the region have climbed.