Oil Soars with Expectation of the EU Ban on Russian Crude

Oil closed at the highest level in nearly two weeks as prospects for a European Union ban on crude imports from Russia seemed more likely, with an extra jolt of support coming from a growing global diesel supply crunch.

West Texas Intermediate crude settled 3.3% higher in New York after swinging between gains and losses earlier. Germany is prepared to stop buying Russian oil in a phased approach, clearing the way for a European Union ban on Russian imports. Fresh reports Thursday fueled a jump in prices. U.S. diesel futures extended its record rally as supplies tighten in the wake of restricted Russian exports.

“The news that the EU is getting close to banning Russian energy imports gave the market a firmer tone but now heating oil is taking the lead, driving U.S. crude futures higher,” said Spencer Vosko, oil director with energy brokerage Liquidity Energy.

The sharp gains in WTI futures shrank its discount to international benchmark Brent crude to the narrowest level since November.

Germany’s Economy Minister Robert Habeck said this week that the country has already cut its reliance on Russian oil enough to make a full embargo “manageable,” potentially laying the groundwork for a continent-wide ban that would upend the global trade in petroleum. The U.S. and U.K. have already pledged to end imports from Russia.

“With Germany open to it, the probability of a ban has increased further,” Giovanni Staunovo, a commodity analyst at UBS Group AG, said. “The question will be if also Hungary supports it or not to get it through as it needs to be unanimous.”

Meanwhile, oil demand in China is weaker while prices for refined products elsewhere are surging. The gap between the first and second month of New York heating oil futures has also climbed to a record of nearly 85 cents a gallon ahead of the May contract’s expiry on Friday.

Prices

  • WTI for June delivery rose $3.34 to settle at $105.36 a barrel in New York
  • Brent for June settlement gained $2.27 to $107.59

China’s top state-run oil processor said during an earnings call that the resurgence of Covid-19 was slowing fuel demand. Hangzhou is the latest Chinese city to start mass virus testing. Traders are also grappling with just how big the hit to Russian production will be as the country’s invasion of Ukraine continues.

While crude supply is keenly focused on Russian flows, replacement barrels from the North Sea are set to dwindle in the coming months. Loadings of the grades that make up the dated Brent benchmark will fall to the lowest level since at least 2007 in June, while shipments from the Johan Sverdrup will hit a 21-month low amid a raft of planned maintenance.