Oil swings as Biden, allies gather to step up pressure on Moscow

Oil fluctuated as investors weighed threats to supplies from the month-old war in Ukraine, with President Joe Biden set to address the crisis on a key trip to Europe that may see more sanctions imposed on Russia.

Global benchmark Brent swung between losses and gains near $123 a barrel. The White House and European Union are close to a deal aimed at slashing the region’s dependence on Russian energy, although that may focus primarily on flows of natural gas. Oil rose more than five per cent on Wednesday after U.S. stockpiles fell and a Black Sea export terminal halted loadings following bad weather. 

Although many buyers are shunning Russian crude, especially former European purchasers, Asian users may be stepping in to take barrels at discounted rates. China’s refiners are discreetly purchasing cheap Russian oil, traders say, and India processors have also scooped up some of the volumes.

Oil has rallied more than 50 per cent this year, hitting the highest level since 2008 earlier this month, as Russia’s invasion of Ukraine threw global commodity markets into turmoil. While the U.S. and U.K. have already moved to bar flows of Russian crude, there’s greater reluctance among EU members to follow suit given the region’s higher dependence. Trafigura Group forecast this week that crude prices are set to keep rising, potentially hitting $150 a barrel.

“The displacement of Russian crude and product flows are the main driver,” so the market is looking out for any potential fresh sanctions and self-sanctioning there, said Paul Horsnell, head of commodities research at Standard Chartered Plc. A hole in the diesel market and strength in refining margins is helping to support crude at higher levels, he said.

Prices

  • Brent for May settlement was little changed at $121.76 a barrel on the ICE Futures Europe exchange at 11:24 a.m. in London.
  • West Texas Intermediate for May delivery was steady at $115 a barrel on the New York Mercantile Exchange.

In Brussels on Thursday, Biden will join back-to-back summits with NATO, the Group of Seven and the European Union. Then on Friday the president visits Poland, which is hosting the biggest number of displaced Ukrainians.

As the war drags on, there’s a growing willingness on both sides to use Russian energy supplies as a weapon. On Wednesday, President Vladimir Putin ordered the nation’s central bank to develop a mechanism to force European customers to pay for Russian natural gas in rubles, spurring a rally in prices.

Oil markets remain deeply backwardated, a bullish pattern marked by near-term prices trading above longer-dated ones. Brent’s prompt spread – the difference between its two nearest contracts – has widened to $3.79 a barrel in backwardation, up from 41 cents at the start of the year.

© 2022 Bloomberg L.P.

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