Oil jumps $4 a barrel as EU proposes ban on Russian oil

Storage tanks at the Petronius Ineos gasoline refinery in La Vera, France, March 29, 2022. REUTERS/Benoit Tessier

NEW YORK (Reuters) – Oil prices jumped on Wednesday as the European Union, the world’s largest trading bloc, announced plans to phase out Russian oil imports, offsetting concerns about demand in China, the largest crude importer.

Brent crude futures rose $4.00, or 3.8 percent, to $108.97 a barrel by 12:40 pm EST (1640 GMT). West Texas Intermediate crude futures rose $4.38, or 4.3%, to $106.79 a barrel.

Europe imports about 3.5 million barrels of Russian oil and petroleum products per day, and also depends on Russian gas supplies.

European Commission President Ursula von der Leyen on Wednesday proposed a temporary oil embargo on Russia over its war in Ukraine, as well as sanctions against Russia’s largest bank. Read more

Von der Leyen said the Commission’s actions include the phase-out of Russian crude supplies within six months and refined products by the end of 2022. It also pledged to reduce the impact of the move on European economies.

A source from the European Union told Reuters on Wednesday that Hungary and Slovakia will continue to buy Russian crude oil until the end of 2023 under existing contracts. Read more

“Russian oil is now ‘bad oil’,” said Bjarne Schieldrop, senior commodity analyst at SEB.

“The energy war between ‘good oil’ versus ‘bad oil’ has just begun,” he added.

In the US, crude oil inventories rose modestly last week, according to the US Energy Information Administration. Inventories rose by 1.2 million barrels as the United States released more barrels from its strategic reserves.

“The Biden administration’s efforts to push crude oil into the international market appear to be paying off, with consistently strong SPR releases leading to robust and sustained crude exports,” said Matt Smith, senior oil analyst at Kpler.

Fuel stocks have fallen, in part due to an increase in product exports since the Russian invasion as buyers have sought other sources.

On Tuesday, oil prices fell more than 2% on demand concerns stemming from the prolonged coronavirus lockdowns in China that slashed travel plans during the country’s Labor Day holiday season. Read more

The global manufacturing PMI contracted in April for the first time since June 2020, Carolyn Payne, chief commodity economist at Capital Economics, said in a note, as lockdowns in China were a major contributor.

On Thursday, the Organization of the Petroleum Exporting Countries and its allies are expected to stick to their policy of increasing monthly production again. Read more

Investors await the policy announcement from the Federal Reserve on Wednesday. The US central bank is expected to intensify its efforts to bring down high inflation by raising interest rates and beginning to reduce its balance sheet. Read more

Narrated by Ahmed Ghaddar. Additional reporting by Florence Tan in Singapore. Editing by Jason Neely, Elaine Hardcastle, David Gregorio and Paul Simao

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