The Biden Administration announced a U.S. ban on imports of Russian oil Tuesday, as economic sanctions snipped more Kremlin links to the global economy. Oil stocks climbed to recent highs. Oil prices soared.
“Today I am announcing the United States is targeting the main artery of Russia’s economy. We’re banning all imports of Russian oil and gas and energy,” President Joe Biden said. “That means Russian oil will no longer be acceptable at U.S. ports and the American people will deal another powerful blow to Putin’s war machine.”
European allies, who are highly dependent on Russian natural gas, are unlikely to join in. But an earlier AP report said that the White House worked in “close consultation with European allies.“
The U.K. announced Tuesday that it would phase out the import of Russian crude throughout the year as it adjusts supply chains and look for alternative energy sources.
Even with no official guidance from their governments, European supermajors BP (BP) and Shell (SHEL) are making their own moves. They are withdrawing from Russian energy markets by exiting future projects in Russia.
Shell issued an apology Tuesday for buying deeply discounted Russian crude late last week. It said that it would stop buying Russian oil and natural gas. It also announced that it’s closing its service stations and aviation fuel service sites in Russia.
The U.S. imports a little more than 400,000 barrels of oil per day from Russia, according to the Energy Information Administration. The bulk of that is finished products, rather than crude oil. The rest is sent to refineries needing crude oil with a higher sulfur content than what is produced in the U.S.
Oil Prices Seen Climbing Further
Oil prices climbed on the likely ban Tuesday. Global benchmark North Sea Brent oil jumped 6.8% to $131.58 per barrel. U.S. West Texas Intermediate rose 6.9% to $127.60.
Oil stocks climbed to recent highs. Exxon Mobil (XOM) shares rose 1.3% to 88.29, a 52- week high, on the stock market today. Chevron (CVX) soared 6.4% to 172.37, also a 52-week high. BP’s U.S. listed shares climbed 4.6% and Shell was up 3.3%.
While Germany says it doesn’t plan to suspend Russian energy imports, the European Union, along with historically neutral countries like Switzerland, joined in restricting Russian banks from participating in the Society for Worldwide Interbank Financial Telecommunication, or Swift, global bank payment system.
The tightening economic sanctions will still impact Russia’s energy sector, even if indirectly.
“While the current sanctions have not been directly imposed on Russia’s oil sector, the intensification of the military conflict and the broader sanctions on Russia’s Central Bank are instead poised to significantly and sustainably reduce Russia’s own incentive to export energy,” Goldman Sachs analysts wrote in a note dated March 7.
The analysts see Brent ranging from $115 to $175 per barrel this year, with a Brent spot price forecast of $135 per barrel this year and $115 in 2023. That’s up from a prior outlook of $98 and $105 per barrel respectively.
Turning To Iran, Venezuela For Oil
“This will be a politically driven process, between SPR releases, a core-OPEC surge and potential lift of sanctions on oil imports from Iran and Venezuela,” the analysts wrote. “While all of these measures could help offset a sizable decline in Russian seaborne exports, they would leave the global oil market with no buffer, still requiring demand destruction through higher prices.”
President Biden is reportedly considering a trip to Saudi Arabia to repair relations and ask the kingdom to produce more oil, according to Axios.
The U.S. is also considering lifting sanctions on Iran and Venezuela as Russian President Vladimir Putin becomes public enemy number one.
Venezuela’s President Nicolas Maduro said Monday that an agenda for future talks over energy markets was agreed upon with U.S. officials over the weekend, according to a Reuters report. But little progress was reportedly made on an official deal.
Iranian oil could also soon reenter the markets as negotiations from Tehran and the West look to hammer out a resurrection of the 2015 Iran nuclear deal. But European officials have said talks in Vienna have stalled as Iran’s chief negotiator left the meetings Monday, according to a Wall Street Journal report.
U.S. Shale To Offer Little Relief To High Oil Prices
Goldman expects the U.S. shale response to be “modest initially, due to drilling times, still cautious producers and a tight service sector.”
U.S. shale oil stocks have focused on careful capital discipline under pressure from investors and lenders to not follow the industry’s historical tendency to drill for drilling’s sake.
“Nobody anticipated needing to grow significantly” in 2022,” said Occidental Petroleum (OXY) CEO Vicki Holub at the CERAWeek by IHS Markit energy conference in Houston. “If you didn’t plan for growth you won’t be able to achieve growth today.”
Gasoline Prices Surge To New Highs
While U.S. oil stocks remain beholden to Wall Street, consumers want energy independence from the rest of the world.
An IBD/TIPP poll conducted last week found 62% of respondents agreed that the U.S. should pursue energy independence. Even if it means relying on domestic fossil fuels at the expense of climate change priorities.
Gasoline prices are surging across the country. The poll found that 72% of the respondents blamed oil-producing countries. Meanwhile, 70% blamed oil companies and the Russia-Ukraine conflict and 62% blamed Biden policies. Only 41% blamed Trump policies.
The national average gasoline price hit $4.173 per gallon, according to auto club AAA’s data Tuesday, the highest on record.
Follow Gillian Rich on Twitter at @GillianRich_ for energy news and more.
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