OIL FUTURES: Crude settles lower amid lack of sanctions on Russian energy flows

Crude prices settled lower Feb. 25 as concerns of near-term supply disruptions eased amid a lack of Western sanctions against the Russian energy sector.

NYMEX April WTI settled $1.22 lower at $91.59/b and ICE April Brent fell $1.15 to $97.93/b.

"Crude prices continue to drop as energy traders realize that War in Ukraine probably won't lead to any disruptions of Russian crude to Europe," OANDA Senior Market Analyst Ed Moya said in a note.

Russia forces continued to press their assault into Ukraine and were closing in on the capital Kyiv Feb. 25, prompting the US and its European allies to levy further sanctions against the Russian government.

US press secretary Jen Psaki said in an afternoon briefing that the country will expand its sanctions response to encompass multiple high ranking Russian officials, including President Vladimir Putin and Foreign Minister Sergei Lavrov.

However, so far, the sanctions response from Western governments has specifically avoided the Russian energy sector, a move that analysts said had deflated much of the risk premiums built into crude prices.

NYMEX March RBOB settled down 4.37 cents at $2.7273/gal and March ULSD declined 4.74 cents to $2.8495/gal.

"Reports that the US sanctions package was specifically designed to allow energy payments to continue helped ease concerns over disruptive sanctions for the energy sector. This is catalyzing a massive squeeze on the hawks as risk premia unwinds," TD Securities analysts said in a note.

The EU has approved a preliminary package of sanctions against Russia that will target the country's oil refining and transport sectors, European Commission President Ursula von der Leyen said Feb. 25. But this package also notably failed to directly target Russian energy flows.

"It's worth reiterating that no supply has yet been disrupted, but some risk premium is likely to remain embedded into prices in response to the resulting uncertainty, as highlighted by the current discount on Russian crude grades," TD Securities analysts added.

Still, sanctions on the Russian financial system appear to be having a ripple effect on to commodity markets. Top buyers of Russian oil told S&P Global Platts Feb. 25 it was hard to secure guarantees at Western banks or find ships to load crude and that the threat of a more severe clampdown has them avoiding the key medium sour Urals grade.

"It's not easy to open a line of credit for Urals," said a Mediterranean trader, while another market participant noted, "there's some talk of letters of credit not being issued for Urals crude."

Russian Urals crude was assessed at its lowest level ever relative to Dated Brent on Feb. 24 but edged 7.5 cents/b higher Feb. 25 amid a lack of indications during the Platts Market on Close assessment process.