Oil climbs above $120 as EU considers Russian oil ban and China eases Covid restrictions

Brent is set for a sixth monthly advance in a row that would be the longest run in more than a decade

An oil storage tank on a field in Texas. Demand for crude in the US is growing faster than production, cutting inventories by a million barrels, according to an EIA report. Reuters

Oil climbed above $120 a barrel mark on Monday buoyed by the EU’s continued efforts to ban Russian oil and prospects of a boost to China’s economic activity as Beijing eases pandemic-related restrictions.

Brent, the benchmark for two thirds of the world's oil, rallied on from Friday’s near three-month high, climbing 0.78 per cent to $120.4 a barrel at 12:41pm UAE time. This is the biggest rebound since the benchmark touched almost $140 a barrel in March.

West Texas Intermediate, the gauge that tracks US crude, gained about 0.9 per cent to $116.1. It marked its fifth weekly gain in a row on Friday as market sentiment improved.

“Oil prices continue to trade higher while traders keep an eye on the possibility of an embargo on Russian oil,” said Naeem Aslam, chief market analyst at Avatrade.

“The EU has failed to reach an agreement to put an embargo on Russia, but speculators believe that they could hear more developments on this matter today.”

Oil prices have rallied in recent weeks as the EU, which heavily relies on Russia for its energy needs, is pushing for a ban imports of Russian oil over the next six months and refined fuels by the end of the year.

The proposed ban is part of a sixth round of EU sanctions on Russia, which would need to be signed off by all 27 member states.

The EU, the world’s biggest trading bloc, on Sunday failed to agree on a revised package of sanctions on Moscow because of opposition from Hungary, but talks will continue and a deal is possible in the coming days.

Brent is set for a sixth monthly advance in a row that would be the longest such run in more than a decade, according to Bloomberg data.

The rise in oil price, which climbed 67 per cent last year on better-than-expected demand last year, is driven by Russia’s military assault on Ukraine that is threatening to disrupt global energy flows.

Both Brent and WTI benchmarks have gained more than 70 per cent in 2022 on supply concerns, the Ukraine war and rising demand as global economies recover from the coronavirus pandemic.

China, the world’s second-largest economy and biggest importer of hydrocarbons, has started easing pandemic restrictions as infection numbers fall.

It plans to reopen malls and shops from June 1 in Shanghai, its commercial centre.

“Markets pricing-in peak virus in Beijing and Shanghai are behind the rally in oil prices today, with a China reopening likely leading to increased oil consumption,” said Jeffrey Halley, a senior market analyst at Oanda.

“Unlike recent times, markets seem unconcerned about oil moving back to March highs, emphasising how much pent-up risk-sentiment demand there appears to be out there,” Mr Halley said.

In the US, demand is growing faster than production, which has cut inventories by one million barrels compared with analyst expectations of a 600,000-barrel decrease, according to the Energy Information Administration’s latest weekly report.

“There is one thing that preoccupies investors this Monday: rising oil prices. The barrel of US crude trades above the $117 [a barrel] mark as the US driving season is about to kick off,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

Oil prices are likely to remain under a “decent positive pressure this week”, Ms Ozkardeskaya said.

“On the upside, we should see a solid resistance into the $120 per barrel mark, as the high oil prices weigh on sentiment about the economic activity, lower the demand and could slow down the rally,” she said.

“But whether it will keep the upside contained near the $120 per barrel is the million-dollar question.”