Oil pushed higher ahead of a flurry of high-level diplomatic activity over the month-old war in Ukraine that may see fresh curbs on Russia.
West Texas Intermediate topped $110 a barrel after giving up early gains on Tuesday to end slightly lower. European Union and NATO leaders are set to gather in Brussels on Thursday to beef up their response to the crisis. Ahead of the meetings, White House National Security Adviser Jake Sullivan said that the US and its allies will impose further sanctions on Moscow.
In the physical market, a key Kazakh-Russian oil pipeline may be forced to reduce shipments via a vital Black Sea terminal by as much as 1 million barrels a day for several weeks due to storm damage. In the US, meanwhile, the industry-funded American Petroleum Institute said crude inventories sank by 4.3 million barrels last week, according to people familiar with the data.
Oil has been boosted by Russia’s invasion, retaliatory penalties and the fact that much of the industry is effectively self-sanctioning. The possibility of the EU curbing Russian crude has been raised, although members including Germany are opposed. Sullivan said Biden will announce joint action on energy security and moves to cut Europe’s dependence on Russian natural gas.
“The market is definitely keeping a close eye on the discussions going on in Europe,” said Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd. “It will be a game changer if the EU strengthens its sanctions to include Russian oil.”
With many buyers shunning Russian crude, the country’s flagship Urals grade has plunged, while some April-loading shipments were canceled. That’s adding to the signs of increased pressure on the nation’s oil market.
Nevertheless, some Russian flows are still finding takers. India’s refiners have grabbed multiple cargoes of Urals crude this month, while China’s private processors are thought to be targeting favored grades from the east of Russia.
Crude markets remain severely backwardated, a bullish pattern characterised by near-term prices trading above longer-dated ones. Brent’s prompt spread — the difference between its two nearest contracts — was $3.70 a barrel, up from $2.38 a week ago and 41 cents at the start of the year.
Traders are also keeping tabs on an omicron wave spreading across China, with lockdowns imposed in some areas. The country saw 4 594 new daily infections earlier this week in the most significant upsurge since the initial outbreak.
“Lockdowns in China are creating a lot of uncertainty regarding demand,” Hynes said.
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