Oil prices rise as Russia's war in Ukraine continues to stoke supply concerns

Brent, the global benchmark for two thirds of the world's oil, settled 2.68 per cent higher at $111.70 a barrel on Friday

A worker standing near an oil pump jack. Oil prices have remained volatile in recent weeks. Alamy

Oil prices notched a weekly gain as supply deficit took centre stage with the EU considering a potential curb on Russian oil imports.

Brent, the global benchmark for two-thirds of the world's oil, settled 2.68 per cent higher at $111.70 a barrel at the close of trading on Friday. West Texas Intermediate, the gauge that tracks US crude, closed 2.59 per cent higher at $106.95 a barrel.

This marked the first weekly gain this month for both benchmarks in the holiday shortened week.

A New York Times report on Thursday suggested the EU was edging close to cutting Russian oil imports in a phased manner that will give Germany and others time to line up alternative suppliers for their energy needs.

Russia's oil supply is expected to decline further amid sanctions by the US and its allies as Moscow continues its military offensive in Ukraine, according to the International Energy Agency (IEA). So far in April, about 700,000 barrels per day of production has been shut-in and losses are likely to grow to 1.5 million bpd for the entire month.

From May onwards, close to 3 million bpd of Russian production could be offline due to international sanctions and as a widening customer-driven embargo comes into full force, the IEA said last week.

The apparent gradual ban on Russian oil imports will be “adding more tightening pressure to oil markets”, Khatija Haque, head of research and chief economist at Emirates NBD, said in research note on Friday.

Russia is the world's second-largest energy exporter. It accounts for about 10 per cent of the world’s energy output, including 17 per cent of its natural gas and 12 per cent of its oil. The US and UK have already banned Russian oil imports.

The oil market has seen tumultuous trading since Russia’s war in Ukraine started in late February. Volatility in crude prices during the past few weeks has been at the highest level since June 2020.

Brent price, which rose 67 per cent last year, climbed to a notch under $140 per barrel in March. It fell briefly under the $100 per barrel mark, but recovered quickly.

Earlier this month, IEA member countries agreed to release a total of 120 million barrels of oil from their emergency stockpile to tackle soaring oil prices after Russia’s war in Ukraine. Half of the total amount will come from the US and the rest from other agency members.

This is on top of the 120 million barrels the US plans to release from its Strategic Petroleum Reserve, which will bring total additional supply to the market to 240 million barrels worldwide.

The co-ordinated action by the IEA and the US has weighed down prices, however, the release of additional inventory is already priced in.

“The flirtation below $100 [per barrel] didn't last long as the slight lifting of [Covid-19] restrictions in China partly removed one key downside risk for prices. With the IEA reserve release priced in, that leaves the risks heavily tilted to the upside,” Craig Erlam, senior market analyst, UK and EMEA, at Oanda, said.

“That could leave Brent prices ranging between $100 and $120 [a barrel] for now, with WTI more like $95-$115 [a barrel range].”

There's no “shortage of risks” to that assessment and the market remains “incredibly headline-driven”, Mr Erlam said.

“The prospect of Finland and Sweden joining the Nato alliance is unlikely to ease tensions between Russia and the West, which could further spill over into the oil market.”