Oil rises as Russian gas flows to Europe decline, Russian oil ban from EU looms

Workers walk as oil pumps appear in the background at the Ouzin oil and gas field in Kazakhstan’s Mangistau region, November 13, 2021. REUTERS/Pavel Mikheev

NEW YORK (Reuters) – Oil prices jumped nearly 5 percent on Wednesday, after plunging nearly 10 percent in the previous two sessions, boosted by supply concerns as Russian gas flows to Europe declined and the European Union worked to win support from the Russian oil embargo.

Russian gas flows to Europe via Ukraine fell by a quarter after Kyiv halted use of a major transit route and blamed it on the intervention of occupying Russian forces. This was the first time that exports through Ukraine had been disrupted since the invasion. Read more

Brent crude rose $5.13, up 5 percent, to $107.59 a barrel by 12:35 pm EST (1635 GMT). US West Texas Intermediate crude jumped $5.68 to $105.44.

“I suspect the gas turmoil in Ukraine is having a steadily increasing impact,” said Jeffrey Haley, an analyst at brokerage OANDA.

The European Union has proposed a ban on Russian oil, which analysts say would tighten the market and alter trade flows. The vote, which needs unanimous support, has been postponed, as Hungary swept into the opposition in its wake. Read more

“Prices will continue to rise especially if the European Union reaches an agreement to phase out Russian oil purchases over the course of the current year,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

The Energy Information Administration said US crude stocks rose by more than eight million barrels in the last week, due to another significant release of strategic reserves. Commercial crude inventories increased as the White House chose to flood the market with oil to offset the rise in prices.

However, fuel prices continued to rise as refining capacity decreased and demand for products increased worldwide – just as Russian exports were curtailed. This has pushed refining margins to near record levels in the US. Despite the increase in crude stocks, gasoline stocks fell by 3.6 million barrels in the last week.

“These withdrawals are happening across products – we’re seeing refineries not being able to keep up with the demand for gasoline,” said Tony Hedrick, energy market analyst at CHS Hedging.

Oil was also supported by hopes of Chinese economic stimulus, after factory-gate inflation eased in China and investors took comfort in signs of a decline in domestic COVID-19 infections.

The price of crude oil soared in 2022 as Russia’s invasion of Ukraine heightened supply concerns, with Brent crude hitting $139, the highest since 2008, in March. Concerns about growth caused by China’s restrictions on COVID and US interest rate hikes led to a recession this week.

The backdrop of tight supply due to what major producers say is caused in part by insufficient investment, remains supportive of oil. The UAE energy minister highlighted these concerns on Tuesday.

Additional reporting by Alex Lawler in London and Laura Sannicola and Arathi Sumasekhar in New York. Editing by Jason Neely, Louise Heavens, Tomasz Janofsky and David Gregorio

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