Oil fell to $125 on speculation that the Russian oil embargo will not exacerbate the supply shock

LONDON (Reuters) – Oil fell to around $125 a barrel on Wednesday, with some investors believing that the U.S. embargo on Russian oil may not exacerbate the supply shock and the head of the International Energy Agency said the agency may continue to tap oil stocks to ease prices.

On Tuesday, US President Joe Biden imposed an immediate embargo on Russian oil. Read more Traders said talk that Ukraine is no longer seeking NATO membership after some news reports this week on the issue weighed on prices. Read more

“Maybe this is playing its part,” Tamas Varga of BVM told the oil broker in the case of Ukraine’s NATO membership.

“The realization that the US import ban may not make the current supply shock worse than it was may also have led to this bout of profit-taking,” he added.

Brent crude fell $3.56, or 2.8 percent, to $124.42 a barrel at 1250 GMT, after rising earlier above $131. US West Texas Intermediate (WTI) fell $3.99, or 3.2%, to $119.71.

The United States imported more than 20.4 million barrels of crude and refined products per month from Russia in 2021, about 8% of U.S. imports of liquid fuels, according to the Energy Information Administration. Read more

“In theory, the United States could compensate for the outages in Russia with its own production,” Commerzbank’s Karsten Fritsch wrote in a report.

Oil also fell as the head of the International Energy Agency described the agency’s decision last week to release 60 million barrels of oil from strategic reserves as an “initial response” and said more could be released if needed. Read more

Crude oil has risen since Russia, the world’s second-largest crude oil exporter, launched what it called a “special operation” in Ukraine. Brent crude hit $139 on Monday, its highest since 2008.

Russia on Wednesday announced a new ceasefire in Ukraine to allow civilians to flee besieged cities, after days of mostly failed promises that left hundreds of thousands of Ukrainians trapped without access to medicine or fresh water. Read more

In addition to the Russian oil embargo, Britain said on Tuesday it would phase out Russian imports and Shell said it would stop buying Russian crude. JPMorgan estimated that about 70% of Russian seaborne oil was struggling to find buyers. Read more

One potential source of additional oil supplies is Iran, which has been in talks with Western powers for months about resuming its nuclear deal. Iran’s chief negotiator at the Vienna talks returned to the Austrian capital on Wednesday. Read more

Amid fears of a supply shortage, there are some indications that the market is not experiencing a shortage of crude oil yet.

US crude stocks rose by 2.8 million barrels, according to market sources, citing figures from the American Petroleum Institute, an industry group, on Tuesday. Official US inventory numbers are due at 1530 GMT.

Additional reporting by Yuka Obayashi and Mohi Narayan Editing by Bernadette Baum and Mark Potter

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