Oil futures traded lower early Wednesday, pausing after a push to nearly 14-year highs in the previous session after President Joe Biden banned U.S. imports of Russian energy, upping pressure on Moscow over its decision to invade Ukraine.
Crude has soared since Russia’s Feb. 24 invasion amid volatile trading action.
Biden announced a ban on Russia oil 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 early 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.
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.
Traders are awaiting official government data on U.S. petroleum inventories Wednesday morning.
The American Petroleum Institute, an industry trade group, reported late Tuesday that U.S. crude supplies rose by 2.8 million barrels for the week ended March 4, according to sources. The API also reportedly showed weekly inventory declines of nearly 2 million barrels for gasoline and 5.5 million barrels for distillates. Crude stocks at the Cushing, Okla., delivery hub were down by 367,000 barrels last week, sources said.
On average, the EIA is expected to show crude inventories down by 700,000 barrels, according to analysts polled by S&P Global Commodity Insights. The survey also showed expectations for weekly supply declines of 2.2 million barrels for gasoline and 1.8 million barrels for distillates.