Oil prices remain high as Russian crude oil shortage hits the market

The de facto Russian crude buyers’ strike that began a month ago pushed oil prices to their highest levels in years. Now the real ramifications are beginning to generate a second wave of ramifications in oil markets.

Big energy companies and commodity trading houses have refused to buy crude oil from Russia in the days following the invasion of Ukraine. Banks also stopped funding these deals, shippers refused to load cargo, and insurers dropped their coverage for fear of running afoul of sanctions or angering corporate interests.

Oil is typically shipped about three weeks after a deal is closed, meaning the drop in deals in the early days of the war led to real supply disruptions as of last week. The turmoil is being felt strongly in Europe, where prices for diesel, which powers cars, trucks and tractors, have skyrocketed.

Russian oil exports by sea fell last week to their lowest level in almost eight months, according to data from Kpler. For the first two weeks after the invasion, these volumes remained strong as trades made before Russian troops crossed the border on February 24 were delivered.

“Commodities tend to be valued in the now, not in the future,” said Giovanni Staunovo, commodities analyst at UBS. “We are beginning to see some disruptions in volumes of both crude oil and products from Russia. If we get more disruptions in the future, the price will react even more strongly.”

Global benchmark Brent rose 9% last week to settle at around $117 a barrel after two straight weeks of declines.

Russia is the third largest oil producer in the world after the US and Saudi Arabia. Before the war, it provided about 7.5% of the world’s crude oil and refined products. The US, Canada, Britain and Australia have banned oil imports from Russia, while the European Union, its biggest customer, continues to buy but has started talks about curbing purchases in the future.

There has been an exodus from the country of oil companies including BP PLC and Shell PLC and oil services companies including Halliburton Co.

Baker Hughes Co. and Schlumberger Ltd.

Shell announced in early March that it would close its gas stations in Russia.



UBS estimates around 2 million barrels a day, or about a quarter of Russia’s production, has been disrupted. The International Energy Agency is forecasting levels could reach 3 million by next month, warning of a possible spark in the worst energy supply crisis in decades.

The world uses about 100 million barrels of oil every day. The hit to global supply is affecting a market already strained by production restrictions imposed by the Organization of Petroleum Exporting Countries and its allies. Oil companies have been slow to invest in new oil fields as shareholders push for a shift to cleaner energy sources and higher cash returns.

A common type of Russian oil, known in the industry as Ural, is being offered at an ever-bigger discount, suggesting Russian oil buyers remain wary. The trading arm of Russian oil major Lukoil tried to sell Urals crude $31 below Brent, according to a trader last week. That was larger than the gap two weeks ago when the gap was around $28. Before the war, the Urals mostly traded near benchmarks.

A Lukoil spokesman did not immediately respond to a request for comment.

Some deals are still being scrapped from the broader view, traders said. The purchases, known in industry jargon as off-market deals, are being made by larger trading houses that are able to fund the purchases themselves rather than using bank loans, they said. These Ural barrels were sold at discounts that were less steep than on online platforms where other participants can see records of trades.

These deals will become publicly visible when the oil is loaded into cargoes about three weeks after the deals are agreed. Shipping dates typically indicate the content, buyer and seller.


How do you see the energy market given the shortage of Russian crude oil? Join the conversation below.

Russia has rapidly evolved from an overt, central role in the global oil supply to being the black sheep of crude oil. Traders said that Russian oil is no longer discussed at work or among friends in the industry. Some traders are banned company-wide from trading Russian strains, with compliance departments reluctant to leave this at the discretion of individual traders.

A trader compared buying Russian oil to being asked to sell oil to a Japanese whaling fleet. “It’s the kind of situation where you don’t even want to talk about it,” he said.

Shell bought a shipment of Russian oil in early March, sparking an outcry from the Ukrainian government, competing traders and media organizations. The company apologized and said it would donate the profits to charity trying to alleviate the humanitarian crisis in Ukraine.

The consequences of the tough economic sanctions against Russia are already being felt around the world. WSJ’s Greg Ip joins others in explaining the significance of what has happened so far and how the conflict could transform the global economy. Photo illustration: Alexander Hotz

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com

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