Brent, the global benchmark for two-thirds of the world's oil, was down 0.40 per cent to $107.20 per barrel at 11.33am UAE time on Tuesday. West Texas Intermediate, the gauge that tracks US crude, was also trading 0.35 per cent lower at $104.80 a barrel.
“Oil prices continue to trade above the critical price level of $100 as traders are keeping a close eye on the EU which is likely to ban Russian crude. If the embargo is placed on Russian oil, we do [expect] oil prices to pick up more volatility,” Naeem Aslam, chief market analyst at Avatrade, said.
The EU is seeking to impose a phased ban on energy imports from Russia as Moscow continues its military offensive in Ukraine. The 27-nation bloc is expected to announce on Tuesday its plans to tighten up sanctions on Russia, potentially including a ban on buying Russian oil.
The latest move from the EU comes after Russia halted natural gas supplies to Poland and Bulgaria last week.
On Monday, Austria joined Germany in saying it could live with an embargo on Russian oil, which it had previously opposed, moving the EU a step closer to such a move.
“Traders are expecting this embargo to take place as the German finance minister has also backed this idea, which is quite a big change in the country’s stance against Russia,” said Mr Aslam.
Meanwhile, Hungary, a leading sceptic of energy sanctions, hinted on Monday it was not yet willing to support an oil embargo.
“Crude prices declined after reports that Hungary vetoed the EU’s proposed ban on Russian energy," said Edward Moya, a senior market analyst at Oanda.
"The growing risk of an embargo on Russian seems less likely until the EU can secure additional energy supplies for Hungary. Hungary can’t function without Russian energy and the EU will need to win their support in delivering harder-hitting sanctions against the Kremlin."
Meanwhile, China has introduced movement curbs in its largest city, Shanghai, as well as in the capital Beijing.
Millions of people have had to stay indoors in Shanghai for more than a month as the government carries out mass testing of its population to isolate infected people and control the spread of the disease.
The new wave of Covid-19 outbreaks and restrictions in the world’s second largest economy and its recent string of softer economic data are raising concerns about waning consumption in the country and weighing on crude prices, said Mr Moya. China is the world's largest importer of oil.
“Covid cases across Shanghai appear to be heading in the right direction, but energy markets are hesitant to become optimistic given the uncertainty of how bad the negative impact will be for the crude demand outlook,” he said.
The EU is heavily dependent on Russian imports. In 2021, the bloc imported 155 billion cubic metres of natural gas from Russia, which accounted for about 45 per cent of EU gas imports and close to 40 per cent of its total gas consumption, International Energy Agency figures indicate.
Traders will also be closely watching the US inventory data, with the American Petroleum Institute industry group reporting stocks for the week ending April 29 on Tuesday, followed by official data from the Energy Information Administration on Wednesday.
“Oil prices seem to have strong support at the $100 a barrel level, but a massive rally seems unlikely given the return of US production and weakening gasoline demand,” said Mr Moya.
Libya is also opening the Zueitina oil terminal to resume exports, after the unit was shut down last month because of political turmoil in the country. The development is expected to add further downward pressure on oil prices.
Libya, an Opec member, produces about 1.2 million barrels of oil a day and is exempt from the Opec+ production deal because of security concerns.