Oil surged for a fourth day, heading for the best run in a month, on signs the European Union may be edging closer to a ban on Russian crude imports to punish Moscow for its special military operation in Ukraine.
West Texas Intermediate topped US$115 a barrel after jumping 18 percent over the previous three days. 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 soared in the wake of the invasion as some buyers shunned Russian cargoes, and the US 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’s 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 to meet tomorrow.
“The oil market is being repeatedly driven to the brink of pricing in the catastrophic scenario,” said 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.”
An additional lift on the demand side came from China as Beijing said it would step up support for the economy, reiterating earlier vows.
In a meeting of the State Council chaired by Premier Li Keqiang, the cabinet called for the adoption of monetary tools to sustain credit expansion at a stable pace, while authorities also promised to maintain policies that can support growth.
West Texas Intermediate for April delivery, which expires later Tuesday, added 2,6 percent to US$115,01 a barrel on the New York Mercantile Exchange at 5:40am in London.
The May contract, which has bigger open interest and volume, climbed 3 percent to US$113,21.
Brent for May settlement gained 3,2 percent to US$119,35 a barrel on the ICE Futures Europe exchange.
Brent’s so-called prompt spread — the differential between its two nearest contracts — expanded to US$3,97 a barrel in backwardation, a bullish pattern in which prompt prices trade above those further out. That’s up from $2.86 a barrel on Friday, and just 41 cents at the start of the year.
Energy markets “remain on edge” as restrictions on Russia exports build, Australia & New Zealand Banking Group analysts including Daniel Hynes said in a note. That’s seen in 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 policy makers including the Federal Reserve.
Chair Jerome Powell said on Monday the US central bank was prepared to raise interest rates by a half percentage-point at its next meeting if needed.- Bloomberg