Oil prices extended their gains on Friday on supply concerns as the EU considers a ban on Russian oil while expectations of higher demand in the US, the world's largest economy, increase as the summer season looms.
The easing of the coronavirus pandemic restrictions in China, the world’s largest importer of oil, is also supporting crude prices.
Brent, the global benchmark for two thirds of the world's oil, was up 0.91 per cent at $118.47 a barrel at 1.29pm UAE time on Friday.
West Texas Intermediate, the gauge that tracks US crude, was also trading 0.62 per cent higher at $114.80 a barrel.
“Brent and crude oil prices are having a decent week and are on track to close in positive territory this week as supply issues drive prices,” said Naeem Aslam, chief market analyst at Avatrade.
“Traders firmly believe that the conflict in Ukraine and Russia is only on the escalation path as Russia continues to make progress in Ukraine. Traders are also keeping a close eye on the prospects of an embargo on Russian oil and, likely, this embargo may see daylight soon.”
The EU, which is heavily dependent on Russia's energy resources, is working to impose a ban on Russian oil imports. 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.
The proposed oil ban is the centrepiece of the sixth round of sanctions on Russia put forward earlier this month by the European Commission, which would need to be signed off by all 27 member states before taking effect.
Hungary, an EU member, is opposing the move, saying it would amount to dropping a “nuclear bomb” on its economy. Hungary’s Prime Minister Viktor Orban said the country needs five years to phase out Russian oil as its economy is heavily dependent on crude imports from Moscow.
“From the technical perspective, the Brent oil price is trading above its critical support level of $100, and as long as the price continues to trade above this price level, we are likely to see bulls controlling the price action,” Mr Aslam said.
Oil prices have gained more than 60 per cent since last year on supply concerns and improved demand as global economies recover from the coronavirus pandemic.
Brent traded close to $140 a barrel in March after Russia’s military offensive in Ukraine, before falling back due to renewed Covid-19 lockdowns in China and the release of oil reserves by International Energy Agency member countries.
“Oil prices rallied sharply overnight as markets continued to fret over tight US galena and diesel supplies ahead of the summer driving season,” said Jeffrey Halley, a senior market analyst for the Asia-Pacific region at Oanda.
“News that [US] President [Joe] Biden is investigating restarting mothballed US refineries had zero impact on markets. That is not surprising as refineries, like aircraft parked in the desert, don’t have a simple on/off switch.”
Opec+, which meets next week, is expected to stick to plans to raise production by only 432,000 barrels a day, “providing another supportive factor in a tight market”, Mr Halley said.
The markets “may also be pricing in peak virus in China, with Shanghai’s port back to 95 per cent of normal operations”.
China, the world’s second-largest economy, has begun to ease Covid-19 restrictions as infection numbers in the country decline.
Shanghai, the country’s commercial centre, plans to reopen shopping centres and shops from June 1.
“WTI’s relative outperformance is due to US gasoline and diesel supplies. The US, though, doesn’t have an oil problem; it has a pipeline and refining bottleneck problem,” said Mr Halley.
Emirates NBD expects Brent to average $120 a barrel in 2022.