Crude Oil Slips Lower; Traders Digest Russia Sanctions

Oil prices edged lower Wednesday, falling from levels last seen in 2014 with traders keeping a close eye on the developing situation in eastern Ukraine after the immediate sanctions the Western powers levied on Russia weren’t aimed at energy supplies.

By 8:50 AM ET (1350 GMT), U.S. crude futures traded 0.2% lower at $91.72 a barrel, while the Brent contract fell 0.1% to $93.80. Both contracts reached their highest levels for over seven years on Tuesday.

U.S. Gasoline RBOB Futures were up 0.1% at $2.8571 a gallon.

The West responded to Russia’s decision to send troops into two breakaway regions in eastern Ukraine by imposing sanctions on Russian banks and high-wealth individuals linked with the Kremlin, while Germany halted the construction of Nord Stream 2, a major gas pipeline project from Russia.

The “sanctions announced up until now should not have much impact on Russian oil exports. Local banks which are heavily involved within the commodities industry have been left untouched,” said analysts at ING, in a note.

“However, the oil market will likely continue to price in a fairly large risk premium, given that there is still plenty of uncertainty.”

The U.S. and its European allies have warned of more severe sanctions if Russia launches an all-out invasion of its neighbor, including overrunning the capital Kyiv.

Another complication traders have to contend with, when pricing up the crude markets, are reports that negotiations surrounding Iran’s return to a nuclear agreement with world powers are close to completion.

An agreement there could eventually mean the return of the Persian Gulf country’s oil exports to the global market.

“A positive outcome would provide much-needed relief to the oil market, given the uncertainty over Russia and concerns over the ability of some OPEC members to increase output,” ING added. “Iran is pumping around 2.5MMbbls/d currently, but over time, this could increase output towards 3.8MMbbls/d.”

Investors now await U.S. crude oil supply data from the American Petroleum Institute, due later in the day. The industry-funded body reported a draw of just over one million barrels of oil last week.