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Russian oil: ‘People are just leery’ regardless of sanctions, analyst says

DTN Senior Market Analyst Troy Vincent joins Yahoo Finance Live to discuss the jumps in crude oil prices as more sanctions are imposed on Russia, U.S.-Europe oil production, and additional pressures and opportunities in the global energy market.

Video Transcript

- Welcome back to Yahoo Finance Live. We're getting in some powerful video here released this morning by the Ukrainian Ministry of Internal Affairs as fighting continues between Russia and Ukraine. Villagers in the small town of Koryukivka, Ukraine standing in the road as a Russian tank approaches. You can see as this crowd stands together to block the tank from advancing. Another video later captured what looked like the same vehicle driving backwards out of the area.

So we're continuing to see the standoff between-- the Ukrainian civilian forces we should almost say. Although in this case, these are just civilians standing in the way of Russian tanks. Turning our attention back to the markets, we've been continuing to watch some of those oil moves pushing higher today on fears of further disruption in energy supply as the West steps up its sanctions against Russia.

Now, you're seeing Brent crude coming off of its highs, trading below that $100 a barrel mark. We've also heard from a number of big oil majors reducing their exposure, pulling back from Russia altogether. BP, one of those. BP CEO Bernard Looney putting out a statement saying that Russia's military invasion has caused him to fundamentally rethink BP'S position with Rosneft, and we know the company is now divested roughly 20% of its stake there.

Let's bring in Troy Vincent, DTN Senior Market Analyst. And Troy, I know you've been watching some of those oil moves closely. Oil and gas exports have not been sanctioned just yet, but how much of the sanctions we've already seen are really playing in to the moves we're seeing today?

TROY VINCENT: Well, you know, we had both a move in the weeks prior to the war even beginning, kind of pricing in some of this potential risk that the market was looking out along the horizon potentially. But then after the invasion from Russia actually started, we saw prices, this kind of knee jerk reaction higher. And we're still obviously holding around the $100 level in Brent but down from the intraday highs that we saw immediately after the invasion.

And I think that when you start to think about the impact on potential sanctions, clearly there's a reason that gas and oil have been carved out of, whether it's the sanctions and the moves on SWIFT, or just the fact that there have been no direct sanctions against oil and gas, it does speak to that mutual dependency both of the Russian government. Given that oil accounts for about half of their budget the oil revenues and also because the rest of Europe depends heavily not only on their oil, but more heavily on their natural gas flows and to a lesser extent, also coal.

So, yes, the higher prices, as I said, you saw this knee jerk reaction. But I think the more that we-- just last weekend, for example, we had just so many sanctions coming that it's hard really to gather what the ultimate impact of those are. And so as a result, whether or not you have these direct sanctions on oil and gas, is not all-- doesn't matter all that much at this point because people are just leery. They're just-- they just want to stay away from that trade if possible.

And to that degree, that's why we've seen Russian Urals crude, for example, move to such a massive discount to global benchmarks.

- I mean, let's separate the oil and gas issues here. Specifically on gas, we know how reliant countries like Germany are on Russian exports. There's some talk here in the US about whether, in fact, those LNG exports to Europe could be accelerated in some way to fill that void if it does come down to sanctions directly on the sector. How-- number one-- what does that timeline look like? And number two, what does that mean for prices?

TROY VINCENT: The timeline on the LNG side is very similar to the oil side in that the US just does not have the capability to ramp up production at a rapid enough pace that would offset Russian supplies into Europe. Furthermore, one of the bigger problems is merely just infrastructure. One of the most important announcements that we heard over the weekend came from the German Chancellor and Vice Chancellor. And one of the major pieces of that discussion was their vision now to build out two LNG terminals, as well as to expand natural gas storage in Germany.

And these are really key points because no matter how much the US or any other global producer of LNG can export, there are also constraints on the import side. And that's more important than ever as we look through some kind of potential protracted and maybe year or multi-year problem for gas supplies from Russia into Europe.

- On the oil side of things, you've got negotiations around the Iran Nuclear Deal resuming in Vienna this week. I mean, we're talking about a direct standoff here between the US, Europe, Russia, and then Iran now in the mix. How optimistic are you that that gets resolved, and what does that ultimately mean for the amount of barrels that come online at a time when there's concerns about supply constraints because of what's playing out in Russia?

TROY VINCENT: So I think the US and the EU clearly have some extra incentive right now, right? Given what's going on in Russia, and I think that they would certainly like to apply more pressure to the Russian oil and gas sector if there wasn't such mutual dependence between Russia and the EU. So I think they have more incentive now than ever potentially right to try to strike a deal with Iran.

That said, even with Iranian barrels, if they could return-- if the sanctions were lifted today, for example. They would start really to pull from inventories from floating storage to try to push as much of their crude on the market at these decade high prices and take advantage of that. However, once again, it's really just not enough to say fully offset losses if in fact you were to see sanctions on oil flows from Russia. So, just to put in perspective, you would likely only see about a million barrels per day, a potential increase in production, and exports out of Iran this year. And, once again, that's something that's going to take months. It's not something that could happen with a flip of a switch.

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