Russian energy ban: What does it mean for U.S. oil industry?

It's been quite a week for crude oil.

Skyrocketing crude oil prices—which had topped $130 a barrel on March 7—have tumbled and plateaued, returning to the $95-per-barrel levels that were in place when Russia invaded Ukraine on Feb. 24.

And as the world works to limit it dependency on Russian energy, the U.S. is banning it outright.

President Biden said March 8 that the U.S. would ban the imports of Russian energy, a move intended to target "a main artery in Russia's economy."

"That means that Russian oil will no longer be acceptable at U.S. ports, and the American people will deal another powerful blow to Putin's war machine," Biden said in a late morning news conference announcing the ban. "...Americans have rallied to support the Ukrainian people and made it clear that we will not be part of subsidizing Putin's war."

So what does this ban mean for the domestic oil industry?

Well, on the surface, not a whole lot.

When it comes to crude oil, the U.S. is fairly self-sufficient. According to the U.S. Energy Information Administration, the U.S. in 2020 produced about 18.4 million barrels per day of petroleum and consumed about 18.12 million barrels per day.

And when it comes to the top sources for U.S. crude oil imports in 2020, it's not even close. Canada accounted for 61 percent (4.12 million barrels per day) of U.S. petroleum imports that year, EIA said. Mexico was the second-largest source, accounting for about 11 percent.

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Bill Hyde, IHS Markit's executive director of olefins and elastomers, noted that Russian oil accounts for about 8 percent of the U.S.' total imports and about 3 percent of the total oil supply, margins that are pretty easy to make up, considering the strength of the North American oil producers.

EIA reports that Russia accounted for about 245 million barrels of the U.S. crude oil and petroleum product imports last year, up about 47 million over 2020.

"The guys in our shop that follow that more closely, they are not concerned that we can't replace those barrels," Hyde said.

IHS Markit analysis indicates that the U.S. should have a stable supply of crude oil and, subsequently gasoline, even with the ban on Russian energy sources. That's not to say that gas prices won't remain volatile, because supply is only part of the equation when it comes to gas prices.

"I don't think our guys are projecting a shortage of gasoline," Hyde said, "but there are some factors out there that will push prices higher, and I don't think there is any getting around that in the short term."

Any disruptions the U.S. market sees from the ban on Russian energy will be minimal, Hyde said, likely limited to the capabilities of each individual refinery.

"The problem with crude oil is that … it is not one thing. When you think about crude oil there's heavy and light crude oils, there is different sulfur content—they call it sweet and sour, depending on how much sulfur is in them," Hyde said. "And refineries are built to handle a specific kind of crude oil. If you are a refinery that is built to handle heavy sour crude and all that is available is light sweet, that is a problem for you.

"So there is going to be that kind of disruption. But as far as replacing the overall total barrels, that is not a big concern that we have."

There is, though, one exception. And in the oil and gas industry that exception is diesel.

Russia, Hyde said, is a major exporter of diesel and fuel oil, and any disruptions to the global balance of those products is likely to have the biggest impact on the U.S. both in terms of supply and pricing.

"The loss of that into the global balance—that is going to be a bigger effect on the U.S. than us banning any sort of imports of Russian crude," Hyde said. "We are more concerned about the heavier portion of the barrel. … The diesel markets are going to tighten up much more than the gasoline markets."

So if the U.S. isn't getting its crude oil from Russia, who will be supplying the extra barrels of crude oil? It's tough to say, but there has been some speculation that Venezuela could again begin supplying the U.S.

"We think that if (Venezuela) opened the door today to U.S. companies … the most we could see within a year is 100,000 barrels a day, which is essentially nothing," Hyde said. " … It wouldn't be significant enough to have any sort of impact. The infrastructure in Venezuela is so badly degraded through years of poor operations, they are not in a position to where they could make a difference."

The one country that could make a difference in the global supply of crude—and, by extension the U.S.—is Iran.

"It wouldn't necessarily affect the U.S. balance, but it would affect the global balance, which would allow prices to come down," Hyde said.