Oil Bounces Back for Weekly Gain as EU Moves Towards Russian Oil Ban

Oil notched a weekly gain as traders weighed a global supply deficit, a potential ban on Russian oil from the European Union, and and China’s latest virus lockdowns.

West Texas Intermediate settled near $107, rising 8.8% for the week. Oil rallied Thursday afternoon after a report that the European Union is moving toward adopting a phased-in ban on Russian oil. President Vladimir Putin vowed to continue the invasion of Ukraine earlier this week, pointing to a prolonged disruption of Russia’s energy exports. Additionally, the International Energy Agency said in a report that OPEC+ members provided only 10% of their promised supply increases last month.

In the U.S., crude stockpiles jumped more than 9 million barrels last week, with over a third of the build attributed to the shift of strategic oil reserves to commercial inventories. At the same time, most stocks of refined products fell, prompting a spike in so-called crack spreads -- the rough profit from turning crude into fuel. 

“Traders realize a good portion of that came from the Strategic Reserve which now sets at 20 year inventory lows,” said Dennis Kissler, Senior Vice President of Trading, BOK Financial. “Crude storage remains 60.45 million barrels below the five-year average which should keep the buyers active on extreme sell offs.”

The oil market has seen a tumultuous period of trading since Russia invaded its neighbor in late February. A recent reserve release by the U.S. and its allies, along with a virus resurgence in China, has weighed on prices in the past few weeks. Yet there are some signs of easing Covid restrictions and China’s central bank is expected to take measures to help bolster a faltering economy.

“Government energy intervention, the perceived self-shunning of Russian crude and the erratic buying patterns in recent weeks have all altered the near-term path,” RBC Capital Markets analyst Mike Tran said. Trading looks “volatile and sloppy over the near term as the market digests the onslaught of 240 million barrels of crude unleashed from strategic reserves.”

Prices:

• WTI for May delivery rose $2.70 to settle at $106.95 in New York
• Brent for June settlement rose $2.92 to settle at $111.70 a barrel.

To be sure, the market is still in the grips of a liquidity crunch sparked by surging volatility after a spike toward $140. Open interest in WTI futures fell to the lowest since 2016 on Wednesday, while traders are using options strategies as a way of effectively raising cash in the face of limited sources of capital. 

Elsewhere, Kazakhstan expects its main oil-export route via Russia to restore full operations in late April, the country’s energy minister said. The nation said it remains concerned about the possible impact of Western sanctions or shipping issues on the flow of crude.

(with assistance from Alex Longley)