Oil futures: Prices retreat from 14-year highs as Russia energy sanctions talk eases

7 Mar 2022

Quantum Commodity Intelligence – Crude oil futures Monday initially came within touching distance of all-time highs after US Secretary of State Blinken said the US was in talks with Europe over banning Russian oil imports and news broke of an outage in Libya, but the market dropped sharply after push back on sanctions from Germany, the UK, and the Netherlands.

Front-month May ICE Brent futures were trading at $122.94/barrel (1630 GMT), compared to Friday's settle of $118.11/b, having hit an earlier high of $139.13/b.

At the same time, April NYMEX WTI was trading $118.52/b, versus Friday's settle of $115.68/b and Monday's earlier high of $130.50/b.

Both benchmarks reached all-time highs of $147/b in the summer of 2008.

But prices cooled later after Germany said Europe needed Russian oil and gas. 

"Europe has deliberately exempted energy supplies from Russia from sanctions," said Scholz. 

"Supplying Europe with energy for heat generation, mobility, electricity supply and industry cannot be secured in any other way at the moment. It is therefore of essential importance for the provision of public services and the daily lives of our citizens."

The UK and Dutch Prime Ministers also said no to sanctioning Russian energy flows. 

Brent had been given a boost early in the day after Libya's state-owned oil firm NOC said on Sunday that 330,000 bpd of crude production had been shut in across the El Sharara and El Feel fields in western Libya.

A company official pegged Libya's total oil output at near 1.2mn b/d around mid-January, implying that current output is below 900,000 b/d.

Russia is already facing a de facto embargo with many oil firms shunning Russian barrels, while exports face further difficulties due to payment issues, shipping and insurance.

Vitol's Mike Muller told Sunday's Gulf Intelligence energy markets podcast: "While I think the world is already pricing in the fact there'll be an inability to take in a serious amount of Russian oil in the western hemisphere, I don't think we've priced in everything yet."

The comments from Blinken came as fresh demands from Russia threatened to derail talks to restore the 2015 Iran nuclear accord, as Moscow said it wanted guarantees Ukraine-related sanctions would not prevent it from trading broadly with Tehran under a revived pact.

The demands, made by Russian Foreign Minister Sergei Lavrov on Saturday and dismissed by US officials on Sunday, came as Western and Iranian officials said they were close to reaching a deal to restore the nuclear pact.

"Iran was the only real bearish factor hanging over the market but now if the Iranian deal gets delayed, we could get to tank bottoms a lot quicker especially if Russian barrels remain off the markets for long," said Amrita Sen, head of research with Energy Aspects.

Prices were also buoyed by further disruptions in Libya after the shut down of two crucial oil fields, causing the country's daily oil production to drop by 330,000 bpd.

Meanwhile, European TTF gas prices skyrocketed again Monday on supply fears, with Apr22 up more than 10% on the day at over €207/MWh (1630 GMT), having reached a record high of €345/MWh.