Oil extends surge on spectre of fresh sanctions against Russia

SINGAPORE (BLOOMBERG) - Oil prices rose on Tuesday (April 5) as the United States and Europe prepared to impose more sanctions on Russia following alleged atrocities against Ukrainian civilians.

West Texas Intermediate climbed 1.8 per cent to US$105.10 a barrel at 2.15pm Singapore time after closing 4 per cent higher on Monday, the biggest gain in two weeks. Brent crude also rose 1.8 per cent to US$109.43.

Washington will announce additional measures this week, according to National Security Adviser Jake Sullivan, who said these may contain curbs on energy. European policymakers, including French President Emmanuel Macron, also flagged scope for further steps.

Oil rallied to the highest level since 2008 in the first quarter as Russia’s invasion of Ukraine disrupted supplies in an already tight market faced with roaring demand and dwindling stockpiles. The US and Britain have already moved to bar Russian oil and there is gathering momentum for some form of similar action from the European Union, although its dependence on flows is higher.

“Given that Europe cannot disengage from Russia’s energy market at the click of a finger, I believe these fears are overdone,” said Mr Jeffrey Halley, a senior market analyst at Oanda Asia Pacific. Moves in Asia may be exacerbated by reduced liquidity with Hong Kong and China out for holidays, he added.

With the war in Ukraine in its second month, Russia is facing allegations that its troops massacred civilians in Bucha and other towns, a charge that Moscow has denied. Later on Tuesday, Ukraine President Volodymyr Zelensky is set to address the United Nations’ Security Council and may urge fresh sanctions.

The possibility of new curbs is offsetting the impact in the global crude market of a vast release by the US from the nation’s strategic petroleum reserves in a bid to tame prices, ease the burden on consumers and peg back inflation. Other countries have said that they will also make oil drawdowns.

Futures remain in backwardation, a bullish pattern marked by near-term prices above longer-dated ones. Brent’s prompt spread - the gap between its two nearest contracts - jumped to US$1.66 a barrel from US$1.53 on Monday.

In a further sign of tightness - as well as rising demand for Middle East cargoes as buyers shun Russia - Saudi Arabia has raised prices for all regions. Saudi Aramco increased its Arab Light crude for next month’s shipments to Asia to US$9.35 a barrel above the benchmark it uses, a record differential.

Goldman Sachs Group said the market likely had a deficit of 1.5 million barrels a day in recent weeks, with inventories at the lowest in recent history on a demand-adjusted basis. The most compelling short-term opportunities were in distillates such as diesel and jet fuel, it said in an April 3 note.

Many western companies are not taking Russian crude, although discounted exports are going to buyers in Asia including China and India. On Monday, commodity trader Trafigura Group offered to sell a cargo of Russia’s Urals grade at a record discount but there were no bids for the shipment.