Oil prices edged higher on Thursday on supply concerns, as the European Union continued to push for a ban on Russian energy imports amid Moscow’s conflict with Ukraine, as well as rising demand as China, the world’s largest importer of oil, began easing Covid-19 movement restrictions.
Brent, the global benchmark for two thirds of the world's oil, was trading 0.68 per cent higher at $114.81 a barrel at 3.52pm UAE time on Thursday. West Texas Intermediate, the gauge that tracks US crude, was up 0.81 per cent at $111.22 a barrel.
“Oil prices are being driven higher by a combination of demand optimism and supply tightness,” Stephen Brennock, an oil analyst at the London-based PVM Oil Associates told The National.
“The near-term demand outlook should get a boost from the start of the US summer driving season and the upcoming lifting of Covid curbs in Shanghai. Meanwhile, underpinning the supportive supply backdrop are expectations that the EU is on the verge of enacting a ban on Russian oil imports.”
The EU, the world’s largest trading bloc, plans to ban Russian oil over the next six months and refined fuels by the end of the year. But Hungary, an EU member, is opposing any ban, saying it would amount to dropping a “nuclear bomb” on its economy.
Meanwhile, China, the world’s second-largest economy, started easing Covid-19 restrictions as infection numbers in the country are falling. Shanghai, the country’s commercial centre, plans to reopen shopping centres and shops from June 1, while the city's port has resumed operations.
“Both Brent crude and WTI have held on to all their recent gains, suggesting the weaker side is the upside in prices," Jeffrey Halley, senior market analyst of Asia Pacific at Oanda, said.
“While China slowdown fears are receding in the minds of traders, fears persist around the increasing tightness of the US diesel market ... I expect prices to remain firm for the rest of the week, with the global data calendar fairly light.”
Average petroleum spot prices have fluctuated between $98 and $130 per barrel since the Ukraine conflict began and are expected to settle at about $107 this year, the International Monetary Fund predicts. Emirates NBD expects Brent to average $120 per barrel in 2022.
“The widely regarded National Oceanic and Atmospheric Administration declared this week that it anticipates an 'above-normal' hurricane season in the second half of 2022," Ehsan Khoman, director of emerging markets research for Europe, the Middle East and Africa at Japan's MUFG Bank, said in a research note.
"This adds another bullish risk to the physical decoupling from Russia, rising demand, depleted inventories, thinning spare capacity and tight product markets."
The supply side has also been affected by dropping investments in the oil and gas sector, as governments focus on cutting emissions to limit global warming, leading to lower spare capacity.
The total investment in the upstream part of the oil and gas sector fell 23 per cent below pre-coronavirus levels to $341 billion in 2021, the International Energy Forum and IHS Markit said in a report last year.
