Oil extends rally as EU members weigh Russian oil ban

SINGAPORE (BLOOMBERG) - Oil rose for a fourth day as the European Union (EU) weighed a possible ban on Russian crude imports to punish Moscow for its invasion of Ukraine, although some key members remain opposed to such a move for now.

West Texas Intermediate was up 1.1 per cent at US$113.23 a barrel at 4pm Singapore time on Tuesday (March 22), after surging 18 per cent over the previous three sessions. Brent crude climbed 1.7 per cent to US$117.30, after hitting US$119 in the morning.

Mr Josep Borrell, the EU’s foreign policy chief, said that he expects leaders to discuss, but probably not yet approve, further sanctions against Russia when they meet in Brussels later this week.

Crude has soared in the wake of the invasion as crude buyers shunned Russian cargoes, and the United States and UK moved to prohibit purchases. The EU is the largest consumer of crude and fuel from Russia, and the Kremlin warned any ban would have a profound effect on the market and hit the continent hardest.

There is a lack of unanimity among EU members on targeting Russian oil. Germany is reliant on crude imports from Moscow and has so far rejected an embargo, and Hungary is also against it. Any decision would need to be agreed by all 27 states. Europe’s leaders are set meet on Thursday.

“The oil market is being repeatedly driven to the brink of pricing in the catastrophic scenario,” said Ms Vandana Hari, founder of Vanda Insights in Singapore. The “EU is already divided on the move - I highly doubt anything will come out of it - but even though it appears to be difficult, crude may not ease until the proposed EU ban has been clearly rejected.”

Brent’s so-called prompt spread - the differential between its two nearest contracts - expanded to US$3.93 a barrel in backwardation, a bullish pattern in which prompt prices trade above those further out. That is up from US$2.86 a barrel on Friday, and just 41 cents at the start of the year.

Energy markets “remain on edge as the restrictions on Russia exports continue to build,” Australia and New Zealand Banking Group analysts Daniel Hynes and Soni Kumari said in a note. That is reflected in the steeply backwardated forward curves, they said.

Vitol Group, the world’s biggest independent oil trader, warned that it expects energy prices to remain elevated as it reported a jump in revenues. “The physical energy markets were already tight as we entered the current crisis,” chief executive officer Russell Hardy said.

The jump in oil is fanning already-elevated inflation in economies around the world, complicating the task for monetary policymakers including the Federal Reserve. Its chair Jerome Powell said on Monday that the US central bank is prepared to raise interest rates by a half percentage-point at its next meeting if needed.