Oil climbs on supply jitters as EU spells out Russian oil ban

The sun sets past pumpjacks in the Belridge oilfield on November 03, 2021 near McKittrick, California.

mario tama | Getty Images

Oil prices extended their gains on Thursday due to supply problems after the European Union announced plans for new sanctions against Russia, including a crude embargo in six months, offsetting concerns over the weak Chinese demand.

Brent rose 42 cents, or 0.4%, to $110.56 a barrel, and U.S. West Texas Intermediate crude rose 10 cents, or 0.1%, to $107.92 a barrel.

Both benchmarks gained more than $5 a barrel on Wednesday.

The sanctions proposal, which must be unanimously backed by all 27 EU countries, also includes phasing out imports of Russian refined products by the end of 2022 and banning all services. shipping and insurance for the transportation of Russian oil.

“The oil market has not fully priced in the potential for an EU oil embargo, so crude prices should be expected to rise over the summer months if passed,” he said. said Bjørnar Tonhaugen, head of oil markets research at Rystad Energy.

French Environment and Energy Minister Barbara Pompili said she was confident European Union member states would reach a consensus on sanctions by the end of this week.

“The EU’s planned oil embargo represents a huge logistical challenge for oil markets,” Investec’s head of commodities Callum Macpherson said.

“Redirecting Russian production from Europe to willing Asian buyers, in the presence of sanctions, is already so difficult that even Russia has admitted that its production will decline significantly,” he added.

Meanwhile, at its Thursday meeting, the Organization of the Petroleum Exporting Countries and allied producers, known as OPEC+, will likely stick to modest increases in oil production, arguing that they are not responsible for geopolitics and supply disruptions.

OPEC Secretary General Mohammad Barkindo reiterated that it was not possible for other producers to replace Russian supply, but expressed concern about slowing demand for transportation fuels and of petrochemicals from the world’s largest importer, China, due to prolonged COVID-19 shutdowns.

A private sector survey on Thursday showed China’s service sector activity contracted at the second-highest rate on record in April as a result of pandemic measures.

In Iran, soaring oil prices have given a breather to its energy-dependent economy and as a result its clerical leaders are in no rush to revive a 2015 nuclear pact with world powers to ease sanctions, they said. said three officials familiar with Tehran’s thinking.

In the United States, crude inventories rose by 1.2 million barrels last week after more oil was released from strategic reserves, according to the Energy Information Administration.

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