EU Russian Embargo Pushes Oil to $123

Oil prices continued to rise today, extending a bull run into this week after the European Union (EU) finally agreed to a phased and watered down ban on Russian crude imports. Brent Crude prices have risen 1.38 per cent to $123.27 per barrel, while WTI Crude has climbed 1.06 per cent to $116.29.

Both benchmarks are now on course to end May higher for a sixth straight month, gaining about 75 per cent over the time period. Meanwhile, the premium of August-loading Brent contracts over a six-month spread hit a nine-week high at close to $15 a barrel, reflecting expectations of supply tightness.

This has been exacerbated by EU leaders agreeing in principle to cut 90 per cent of oil imports from Russia, which will be phased in over six months and on refined products over eight months. The embargo exempts pipeline oil from Russia as a concession to Hungary – which makes up around a third of EU supplies.

Fiona Cincotta, financial markets analyst at City Index said: “This deal is by no means a surprise to the market, and it is watered down from the original proposal. However, the impact is still likely to be significant and that will keep oil prices elevated towards $120 per barrel.”

Callum Macpherson, Investec’s head of commodities, recognised the deal was clearly “watered down from what was originally proposed, and that investors should wait for more details to emerge. He said: “Once we get into next week, and we have more detail (hopefully) on the terms of the EU embargo and a liquid front contract to trade, it will be clearer wat the market really thinks about all this.”

Meanwhile, OPEC+, which consists of the cartel and ally producers including Russia, is likely to stick to a modest July output hike of 432,000 barrels per day. The organisation has persistently failed to reach output targets this year, despite only modest pledges to increase supplies, amid capacity issues and fears of a supply glut that could leave producers exposed.

Oil prices are also being buoyed by expectations increased demand, after Shanghai – China’s biggest city – announced an end to its Covid-19 lockdown, and the US summer driving season kicked off.

Nevertheless, price gains were weighed down by inflation concerns, with the Federal Reserve being increasingly hawkish in combatting escalating prices.