KUALA LUMPUR – Oil prices are on the up and up Tuesday (May 31) following the announcement from the European Union (EU) to further reduce Russia’s oil imports.
Reuters reported that the action is fuelling fears of a tighter market which is already strained for supply due to the rising demand ahead of the busy summer driving season for the US and Europe.
Brent crude futures for July were up by 33 cents to US$122 a barrel at time of writing. Meanwhile, the more active August contract increased by 33 cents as well to US$117.93.
The articled stated that US West Texas Intermediate crude futures were trading at US$117.31 per barrel from the US$115.07 per barrel recorded from Friday’s (May 27) close. Since Monday was a public holiday in the US, there was no recorded settlement.
Leaders of EU had in principle agreed to a 90% reduction of Russia’s oil imports by the end of this year. This action finally resolves the stalemate with Hungary over the bloc’s most sever sanction against Russia since the country’s invasion of Ukraine started roughly three months ago.
Despite that, some experts believe that the increase in oil prices may be muted due to the fact that the market has already factored in the supply constraints.
When speaking to Reuters, SPI Asset Management managing partner Stephen Innes said that with almost every EU member agreeing to the ban, it suggested that the market was already factoring in “EU self-sanctions and significantly less Russian oil flowing to Europe in 2022.”
Consequently, Innes opined that the market is pricing in more demands in Asia through China.
“However, the glaring concerns are the skyrocketing petrol prices at the pump which could cause some driving season demand destruction,” he continued.
Reuters reports that oil demands are expected to increase in China after the republic’s relaxation of COVID-19 measures. China’s largest city, Shanghai had announced the end of its two-month lockdown. This would allow for the vast majority of its population to leave homes and drive cars from June 1.
On the production side, OPEC+ is expected to adhere to its agreement from last year at its meeting on June 2, with a modest July output increase of 432,000 barrels per day, six OPEC+ sources had told Reuters. This rebuffs Western calls for a faster increase to lower surging oil prices.
OPEC+ (the Organization of the Petroleum Exporting Countries) and allies led by Russia, had maintained that the oil market is balanced with the recent oil price hikes unrelated to underlying factors.
This year had oil prices soaring to the highest over a decade with prices up more than 55%.
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