Oil Ekes Out Gain as EU Ban on Russian Crude Gains Support
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(Bloomberg) -- Oil ended a choppy session higher as the market struggled to find direction amid Germany’s support for a gradual ban on Russian oil and bearish headwinds created by China’s lockdowns.
West Texas Intermediate edged forward to settle above $102 a barrel following a late-day rebound in equity markets. Earlier, Germany said it will support a gradual ban on Russian oil. The country, which depended on Russia for a third of its oil imports last year, previously resisted a ban. Meanwhile, U.S. fuel supplies fell, government data showed, widening an already historic gap in the spread between front-month and later-dated diesel contracts.
If a coordinated EU embargo on Russia’s crude is implemented, it would make every other barrel of oil on the market, “that much more valuable to the market,” said Brian Kessens, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “All else equal, we are going to see a significant oil rally to the extent that it is a true oil embargo.”
U.S. crude stockpiles rose 619,000 barrels last week, according to an Energy Information Administration report Wednesday. However, refined products markets continued to show signs of extraordinary tightness as the disappearance of Russian oil forced Europe and Latin America to depend more on U.S. imports for fuel.
Gasoline stocks in New England fell to their lowest since 1991, while diesel inventories sunk to the lowest since 1996. Nymex diesel futures closed at $4.6743 a gallon on Wednesday, a record in exchange data going back to 1986. The difference between diesel futures for immediate delivery on the New York Mercantile Exchange over the next month -- known as the prompt spread -- surged to more than 74 cents a gallon.
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European Union countries have been rushing to reduce their dependence on Russian energy following Putin’s invasion of Ukraine. Officials from the bloc have been in talks over possible steps to curb oil imports from the country, with Germany saying Tuesday that a full embargo would be manageable. The U.S. and U.K. have already pledged to ban imports from the OPEC+ producer.
The renewed geopolitical risk comes just as the tightest corner of the oil market flares up again. East coast distillate inventories were at the lowest since 1996 and U.S. diesel futures settled at a fresh record Tuesday, while profits from making the fuel in Europe are the highest since at least 2011. Russia is Europe’s largest external supplier of the middle distillate.
Earlier, Russia halted gas flows to two European countries, making good on a threat to stop supplying any buyers that refuse President Vladimir Putin’s demand to pay for the fuel in rubles.
In Asia, some positive signs emerged from virus-hit China, with Shanghai hinting at an easing of lockdown measures and case numbers in Beijing stabilizing. President Xi Jinping also made a commitment to boost infrastructure construction to bolster the economy.
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