Oil surges as US bans Russian crude, Britain to phase out purchases

Oil prices have surged more than 30 percent since Russia launched a military attack on Ukraine, and the United States and other countries imposed a raft of sanctions. Russian oil and gas exports were already being shunned before the ban as traders sought to avoid running afoul of future sanctions.

U.S. President Joe Biden announced a ban on Russian oil and other energy imports. Britain said it will phase out the import of Russian oil and oil products by the end of 2022, giving the market and businesses time to find alternatives.

Brent crude futures settled at $127.98 a barrel, 3.9 percent higher, while U.S. crude futures settled at $123.70 a barrel, a 3.6% increase.

Russia ships 7 million to 8 million barrels per day of crude and fuel to global markets. European allies are not expected to join the United States in the ban, but major buyers there are already shunning Russian oil. Shell, the one notable major that did buy Russian crude, faced a torrent of criticism, including from Ukraine's foreign minister. On Tuesday, Shell said it would no longer buy Russian oil.

The disruption could ripple through other energy markets, as Russian oil and products are used for refining into other goods.

"We are at the beginning of that shockwave in energy markets," said Roger Diwan, vice president of financial services at S&P Global.

U.S. Energy Secretary Jennifer Granholm said after the sanctions announcement that allies were not under pressure to ban Russian oil.

"We don't rely that much on Russian oil and we don't rely on Russian gas at all. We know that our allies across the world may not be in that same position. And so we are not asking them to do the same thing," Granholm told CNBC in an interview.

Despite the small size of U.S. imports from Russia, the ban is "one more source of supply loss," said Matt Smith, lead oil analyst at Kpler. "It's just one more escalation in a series of events that have pushed crude and product prices higher," Smith added.

Before the ban was announced, Goldman Sachs raised its Brent forecast for 2022 to $135 from $98 and its 2023 outlook to $115 a barrel from $105, saying the world economy could face the "largest energy supply shocks ever" because of Russia's key role.

Many buyers were already avoiding Russian oil. Shell PLC (SHEL.L) said it would stop all spot purchases of Russian crude after drawing criticism for a purchase made on March 4.

Expectations have dimmed for an imminent return of Iranian crude to global markets, adding upward pressure on prices as talks have slowed between Tehran and world powers.

The supply disruptions have prompted widespread calls for higher output from oil producers.

Mustafa Sanalla, head of Libya's state-run National Oil Corp, said the country's production is currently 1.3 million barrels per day and will reach 1.5 million barrels by year-end.

API data showed a surprise increase of 2.8 million barrels in U.S. crude stocks for the week ended March 4, according to sources.