Oil futures: Brent surges to new seven-year high as sanctions touch Russian oil

0812 GMT: Crude futures surged March 2 to a new seven-year high as international sanctions on Russia increasingly squeeze supply of the country's oil and markets see little sign OPEC+ will change its output strategy in response to $100 oil and the war in Ukraine.

The May ICE Brent crude futures contract surged to almost $113/b in early trading March 2, hitting fresh seven-year highs and taking its two-day gains at one point to 15%. At 0812 GMT, the contract was $6.15/b (5.9%) higher than the previous close at $111.12/b. The last time Brent crude futures traded above $115/b was June 2014.

Futures are now following sharp moves seen in physical crude markets. According to S&P Global Commodity Insights, Platts assessed Dated Brent -- the key benchmarks used to price about two-thirds of the world's oil -- closed March 1 near $113/b, its highest level since June 24, 2014. Russian Urals differentials slumped to a record low of around minus $18/b against Dated Brent.

Sanctions targeting mainly Russia's financial sector are now broadening to touch on oil. On March 1, the UK banned all Russian-owned oil tankers from docking in British ports and earlier Canada blocked oil imports of Russian oil(opens in a new tab). Some European refiners have also shifted their crude slates away from Urals and Russian feedstocks.

The reluctance of some buyers to take Russian cargoes is seen benefitting North Sea crudes, especially UK Forties and Norway's Johan Sverdrup, although available volumes are significantly lower.

Urals typically has a specific gravity of around 31.1 API with a sulfur content of 1.7%, while Johan Sverdrup is heavier with an API of 28.7 but with a lower sulfur content of 0.8%. Forties varies depending on how much crude from the Buzzard field is in the blend but is lighter and sweeter than Urals, with a gravity of around 37-40 API and a typical sulfur content of around 0.55%.

Markets are also reacting to the expectation that the OPEC+ producer group -- dominated by Russia, Saudi Arabia and the UAE -- will stick to its existing strategy of drip feeding a modest 400,000 b/d of additional supply into the market. OPEC+ meets March 2 and is expected to rubber stamp the incremental production increase for April despite pressure from consuming nations over surging prices and calls from the US to isolate the Kremlin following the invasion of Ukraine.

The OPEC+ meeting comes after the International Energy Agency, chaired by the US, agreed March 1 to coordinate a release of 60 million barrels from strategic petroleum reserves over the next month -- or about 2 million b/d -- "to send a unified and strong message to global oil markets that there will be no shortfall in supplies as a result of Russia's invasion of Ukraine."