Oil prices jump 4% as EU proposes banning Russian crude

Oil prices jumped on Wednesday as the European Union, the world’s largest trading bloc, announced plans to phase out Russian oil imports, offsetting demand concerns from the top crude importer , China.

Brent crude futures rose $3.92, or 3.7%, to $108.89 a barrel as of 11:02 a.m. EDT (1502 GMT). West Texas Intermediate crude futures rose $4.02, or 3.9%, to $106.32 a barrel.

Europe imports some 3.5 million barrels of Russian oil and petroleum products daily and is also dependent on gas supplies from Moscow.

European Commission President Ursula von der Leyen on Wednesday proposed a gradual oil embargo against Russia over its war in Ukraine, as well as sanctions against Russia’s top bank.

The Commission’s measures include phasing out supplies of Russian crude within six months and refined products by the end of 2022, von der Leyen said. It is also committed to minimizing the impact on European economies.

Hungary and Slovakia will, however, be able to continue buying Russian crude until the end of 2023 under existing contracts, an EU source told Reuters on Wednesday.

“Russian oil is now ‘bad oil’,” said Bjarne Schieldrop, chief commodities analyst at SEB.

“This energy war of ‘good oil’ against ‘bad oil’ has just begun,” he added.

In the United States, crude inventories rose slightly last week, according to the US Energy Information Administration. Inventories rose by 1.2 million barrels as the United States released more barrels of strategic reserves.

“The Biden administration’s efforts to push crude into the international market appear to be working, as strong and persistent SPR releases are translating into continued robust crude exports,” said Matt Smith, senior oil analyst at Kpler.

Fuel stocks have fallen, in part due to increased product exports since the Russian invasion as buyers have sought other sources.

On Tuesday, oil prices fell more than 2% on demand concerns stemming from prolonged COVID-19 lockdowns in China that curtailed travel plans over the Labor Day holiday period.

The global manufacturing purchasing managers’ index contracted in April for the first time since June 2020, with China’s shutdowns a key contributor, said Caroline Bain, chief commodities economist at Capital Economics in a note.

On Thursday, the Organization of the Petroleum Exporting Countries and their allies are expected to stick to their policy of another monthly increase in production.

Investors await an announcement from the US Federal Reserve on Wednesday. It is expected to step up its efforts to reduce high inflation by raising interest rates and shrinking its balance sheet.

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Felix J. Dixon