Oil settles lower on doubts about Russia oil sanctions

Brent crude futures fell US$0.49 or 0.5 per cent to settle at US$100.58 a barrel. PHOTO: AFP

MELBOURNE (REUTERS) - Oil settled lower on Thursday (April 7), adding to weekly losses on uncertainty that the euro zone will be able to effectively sanction Russian energy exports and after consuming nations announced a huge release of oil from emergency reserves.

Prices were also pressured by fears that lockdowns in China due to a new wave of Covid-19 would slow the recover in oil demand.

Brent crude futures fell US$0.49 or 0.5 per cent to settle at US$100.58 a barrel, while US West Texas Intermediate (WTI) crude fell US$0.20 or 0.6 per cent to settle at US$96.03 a barrel. In the previous session, both benchmarks plunged more than 5 per cent to their lowest closing levels since March 16.

The European Union's top diplomat, Mr Josep Borrell, told a Nato meeting that new EU measures, including a ban on Russian coal, could be passed on Thursday or Friday and the bloc would discuss an oil embargo next.

However, the coal ban would take full effect from mid-August, a month later than initially planned.

"Nobody wants to bite the bullet and sanction Russian energy, which was propping up the market," said Mr Bob Yawger, director of energy futures at Mizuho.

India has continued purchases of discounted Russian crude oil imports, pushing out what analysts had predicted would be a loss of two to three million barrels per day of Russian oil from the global market.

"While such a loss is still possible once contracts roll off and India's required refinery needs or storage is satisfied, such a development could still be weeks, if not a couple of months, away," said Mr Jim Ritterbusch, president of Ritterbusch and Associates.

In China, multiple outbreaks of the virus have prompted widespread lockdowns in Shanghai, the most populous city.

"The demand situation in China is really not looking good, especially when we have so much new supply on the market," said Mr John Kilduff, a partner at Again Capital.

On Wednesday, International Energy Agency member countries agreed to release 60 million barrels on top of a 180 million-barrel release announced by the United States last week to help drive down fuel prices.

Japan will release 15 million barrels of oil from state and private reserves, Japan's Kyodo news agency reported.

"Although this is the biggest release since the stockpile was created in 1980, it will fail to ultimately change the fundamentals in the oil market," ANZ Bank said of the US release.

ANZ said the release would probably delay further increases in output from producers and could give the Organisation of Petroleum Exporting Countries and its allies including Russia, together called Opec+, more "breathing room amid calls to increase output further". Other analysts saw the stocks release as a big relief amid concerns over market tightness.

"In view of these quantities, the previous concerns about tight supplies are no longer justified, as can also be seen from the price trend," Commerzbank said, noting that Brent prices have plunged by about US$12 a barrel since the first announcement of a US release last week.

Follow ST on LinkedIn and stay updated on the latest career news, insights and more.