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Futures Movers: Global oil prices drop more than 13% from their highest finish in nearly 14 years

Oil prices fell sharply Wednesday, with global prices settling down by more than 13% after climbing to a nearly 14-year high in the previous session when President Joe Biden banned U.S. imports of Russian energy, upping pressure on Moscow over its decision to invade Ukraine.

Price action

West Texas Intermediate crude for April delivery
CL00,
-11.66%

CL.1,
-11.66%

CLJ22,
-11.66%

fell $15, or 12.1%, to settle at $108.70 a barrel, after ending Tuesday at its highest since Aug. 1, 2008.

May Brent crude
BRN00,
+0.57%

BRNK22,
+0.57%
,
the global benchmark, fell $16.84, or 13.2%, to $111.14 a barrel. It ended Tuesday at its highest since July 22, 2008.

April natural gas
NGJ22,
-0.31%

settled at $4.526 per million British thermal units, down a fraction of a penny.

April gasoline
RBJ22,
-10.33%

fell 10.6% to $3.294 a gallon. April heating oil
HOJ22,
-21.86%

dropped 21.9% to $3.464 a gallon, suffering the biggest one-day percentage decline since January 1991, according to Dow Jones Market Data. Both contracts settled at record highs on Tuesday.

Market drivers

Crude has soared since Russia’s Feb. 24 invasion amid volatile trading action.

Biden announced a ban on Russia oil, liquefied natural gas, and coal imports on Tuesday. Russia is the world’s second-biggest petroleum exporter and usually exports 4.5 million barrels of crude and 2.5 million of oil-products each day. However, last year only about 8% of U.S. imports of oil and petroleum products came from Russia. Last year, the U.S. imported nearly 700,000 barrels per day of crude oil and refined petroleum products from Russia, the White House said Tuesday.

U.S. benchmark oil remains overbought and could continue to pullback towards an initial support zone between $107 and $112, said Tyler Richey, co-editor at Sevens Report Research.

However, a retreat in prices would not shift the current bullish technical outlook for oil and the broader energy complex, he told MarketWatch. “If the Russia-Ukraine situation were to deteriorate meaningfully, we could quickly see a run towards the all-time highs” in oil prices, which provides a “measured move target of roughly $145 [a] barrel — just two dollars shy of the previous record.” WTI oil touched intraday highs above $147 in July 2008.

If Western allies join Washington in banning Russian energy imports that could create a 4.3 million barrel per day “hole in the market that simply cannot be quickly replaced by other sources of supply,” said Bjørnar Tonhaugen, head of oil markets at Rystad Energy, in a note.

Read: Diesel’s cost climb could hit consumers harder than record gasoline prices

In that scenario, oil prices “must therefore rise to destroy sufficient demand and incentivize a supply response through higher activity — both of which happen with a time lag of several months — to rebalance the market at a higher supply/demand/price intersection,” he said.

While not the most likely scenario, Tonhaugen estimated that if Russian oil exports to the West were halted by April, with only China and India keeping current import levels intact, Brent would need to hit $240 a barrel by summer to destroy demand.

Read: $200 crude? ‘Anything could happen’ to oil prices as market grapples with Russia sanctions, says top commodity trader

Data

On Wednesday, the Energy Information Administration reported that U.S. crude inventories fell by 1.9 million barrels for the week ended March 4.

On average, the EIA was expected to show crude inventories down by 700,000 barrels, according to analysts surveyed by S&P Global Commodity Insights. The American Petroleum Institute on Tuesday reported a 2.8 million-barrel increase, according to sources.

The EIA also reported weekly inventory declines of 1.4 million barrels for gasoline and 5.2 million barrels for distillates. The analyst survey showed expectations for weekly supply declines of 2.2 million barrels for gasoline and 1.8 million barrels for distillates.

The EIA data showed crude stocks at the Cushing, Okla., Nymex delivery hub edged down by 600,000 barrels for the week.

Separately, a survey from S&P Global Commodity Insight showed members of OPEC+ — the Organization of the Petroleum Exporting Countries and their allies —- with output quotas pumped 38.38 million barrels a day in February. That was still 764,000 barrels per day short of their collective production targets.

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