Immediate US ban on Russian energy to have biggest impact on oil flows

The US will immediately ban imports of Russian oil, LNG, and coal in response to its war on Ukraine, President Joe Biden announced 8 March, calling the flows the "main artery of Russia's economy" while predicting the policy would further increase global and US fuel prices.

Crude futures rallied on reports that a ban was imminent but pulled back after the announcement. NYMEX front-month crude settled at $123.70/b 8 March, up $4.30, while ICE front-month Brent settled at $127.98/b, up $4.77.

The ban on new transactions for Russian energy imports takes effect immediately, but the US will grant 45 days for companies to wind down any existing contracts, a senior Biden administration official said in a background call with reporters. The policy also prohibits new US investment in Russia's energy sector, formalizing steps private companies have already started taking in recent days.

Traders and refiners voluntarily cut US imports of Russian crude and products in the days after its Ukraine invasion.

The flows have fallen to roughly 200,000 b/d of Russian oil products since January, with 65% of that fuel oil and 20% vacuum gasoil, and 37,000 b/d of Russian crude, according to the latest estimates by Anthony Starkey, analyst for trade flow and modeling at S&P Global Commodity Insights.

The US imported 473,000 b/d of Russian refined products and 199,000 b/d of Russian crude in 2021, according to the Energy Information Administration.

The ban drew reaction from numerous speakers at CERAWeek 2022 by S&P Global, which is taking place 7-11 March in Houston, with Helen Currie, chief economist for ConocoPhillips, calling it "the right move politically."

Speakers noted that the US's move comes atop the "self sanctions" that oil companies have been making for the last two weeks that drew down the level of imports, and they said that refiners that use Russian oil have probably already started to revise their operations to reflect a different crude mix.

In December, the US refiners most reliant on imports of Russian crude and feedstocks were Valero at 4.79 million barrels, ExxonMobil at 2.98 million barrels, and Monroe Energy at 2.08 million barrels, according to monthly EIA data.

US supply response

The Biden administration consulted European allies and other partners on the import ban but did not ask them to join, the official said, given their own energy security considerations.

"Strong domestic energy production infrastructure" in the US and lower reliance on Russian oil compared with Europe allowed the US to impose the ban, the administration official said.

Noting the rise in global oil prices and growing pain at the pump, the official conceded "there will be costs for standing up to Putin, but we're doing all we can to mitigate those costs."

The administration official said price signals are giving US drillers "every incentive" they need to increase supply.

"It's time for oil and gas companies to work with Wall Street to unleash our productive capacity," the official said, adding that investors also need to do their part by easing up on shareholder returns and allowing companies to boost production.

"This is a time for Wall Street to step up, for oil and gas companies to step up and invest in America's energy," the official added.

For the world overall, the impact of bans and self-sanctions on Russian crude could remove about 4 million b/d from the market in the relative near term, said S&P Global Executive Director Aaron Brady. For context, he estimates that the world, primarily major oil producers in the Middle East, has about 3 million b/d of available capacity.

The American Petroleum Institute noted: "The industry has already taken significant and meaningful steps to unwind relationships, both with respect to assets in Russia, as well as imports of Russian crude oil and refined products. We share the goal of reducing reliance on foreign energy sources and urge policymakers to advance American energy leadership and expand domestic production to counter Russia's influence in global energy markets."

Limited coal, gas impact

The new US limits are not expected to have a major impact on coal or LNG markets, as US import volumes are minimal.

The US Northeast has in the past imported rare cargoes of Russian-origin LNG, driven by regional pipeline constraints and the US Jones Act barring foreign ships from delivering cargoes between US ports.

Trinidad was the only source of imported LNG in 2021, with the US taking 21.4 Bcf, according to the Department of Energy.

The Interstate Natural Gas Association of America released a statement in support of the ban. "Our member companies stand ready to move forward on projects that are currently pending at FERC which will ensure natural gas supply keeps up with the rising demand by allowing natural gas to be to be safely moved from areas of the country where it is produced to areas where it is needed for heating homes, electric generation, and manufacturing," it said.

-- Article by Meghan Gordon, meghan.gordon@spglobal.com; Jasmin Melvin, jasmin.melvin@spglobal.com; Janet McGurty, janet.mcgurty@spglobal.com; Jeff Mower, jeff.mower@spglobal.com; Kevin Adler, kevin.adler@IHSMarkit.com.

-- Edited by Richard Rubin, newsdesk@spglobal.com

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.