Oil extends rally after US bans Russian imports, fuelling supply fears

The US imports a small share of Russia’s oil exports and does not buy any of its natural gas. Europe is not expected to join the US in the ban. PHOTO: AFP

TOKYO (REUTERS) - Oil prices extended their rally on Wednesday (March 9) over fears of a potential supply shock as the United States banned Russian oil imports, and amid signs that some buyers are already shunning them.

Brent crude futures were up US$2.91, or 2.3 per cent, at US$130.89 a barrel at 1.20pm Singapore time, after jumping 3.9 per cent the previous day.

US West Texas Intermediate (WTI) crude futures were up US$2.34, or 1.9 per cent, at US$126.04 a barrel, after surging 3.6 per cent on Tuesday.

United States President Joe Biden on Tuesday imposed an immediate ban on Russian oil and other energy imports, and Britain said it would phase out Russian oil imports through the end of 2022 in response to Russia’s invasion of Ukraine.

Russia is the second-largest crude oil exporter behind Saudi Arabia, shipping seven million to eight million barrels per day of crude and fuel to global markets.

The US imports a small share of Russia’s oil exports and does not buy any of its natural gas. Last year, roughly 8 per cent of US imports of oil and petroleum products came from Russia.

Europe, which gets 40 per cent of its natural gas and one-third of its oil from Russia, is not expected to join the US in the ban, but major buyers there are already shunning Russian oil.

Shell said on Tuesday it would stop buying Russian crude and phase out its involvement in all Russian hydrocarbons, becoming one of the first major Western oil companies to abandon Russia entirely.

Goldman Sachs estimated that more than half of Russian oil exported from ports remained unsold, while JP Morgan estimated that 70 per cent of Russian seaborne oil was struggling to find buyers.

Oil prices have surged more than 30 per cent since Russia invaded Ukraine on Feb 24.

They rocketed on Monday to their highest levels since July 2008, with Brent hitting US$139.13 a barrel and WTI US$130.50.

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“On top of the US and Britain’s announcement effects, fears of further disruptions of supply from Russia due to intensifying sanctions on Moscow prompted fresh buying,” said Mr Hiroyuki Kikukawa, general manager of research at Nissan Securities.

“But Monday’s highs will likely become a ceiling for the short term as speculative buying is expected to slow down soon and countries in the Northern Hemisphere are headed to spring when fuel demand drops,” he added.

Oslo-based consultancy Rystad Energy said Brent could rise to US$200 if Europe and the US banned Russian oil imports.

Goldman Sachs raised its 2022 Brent spot price forecast to US$135 per barrel from US$98 and its 2023 outlook to US$115 from US$105. 

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