Oil rises as hopes for a European Union ban on Russian crude oil grow

After fluctuating between gains and losses earlier in the day, West Texas Intermediate crude rose about 3% in New York. Germany is ready to phase out its purchases of Russian oil, paving the door for a European Union ban on Russian imports. Fresh data released on Thursday drove a price increase. As supply tightens for the product that has become the world’s most in-demand fuel since Russia’s invasion, U.S. diesel futures extended their record run.

“The news that the EU is on the verge of banning Russian energy imports gave the market a boost, but now heating oil is taking the lead, driving US crude futures higher,” said Spencer Vosko, oil director at Liquidity Energy.

Sharp gains in WTI futures narrowed the gap between it and the international benchmark Brent crude to the smallest since January.

Germany’s Economy Minister, Robert Habeck, claimed this week that the country has already reduced its dependency on Russian oil to the point where a full embargo would be “manageable,” laying the framework for a continent-wide boycott that would upend global petroleum commerce. The United States and the United Kingdom have already promised to prohibit imports from Russia.

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“Now that Germany is on board, the chances of a ban have increased even more,” said Giovanni Staunovo, a commodity analyst at UBS Group AG. “The question will be if Hungary also supports it or not, as it requires unanimous approval.”

Meanwhile, oil demand in China is weaker while prices for refined products elsewhere are surging. The gap between the first and second month of New York heating oil futures has also climbed to a record of nearly 85 cents a gallon ahead of the May contract’s expiry on Friday.

It’s not just diesel markets that have been strong recently. Profits for turning crude into gasoline in the U.S. were at the highest since 2013 on Wednesday. That followed data signaling that inventories of the fuel had fallen for a fourth week.

During an earnings call, China’s main state-run oil processor said that the return of Covid-19 was dampening fuel demand. Hangzhou is the most recent city in China to begin broad viral testing. Traders are also debating how much of a blow Russia’s production will take as its invasion of Ukraine proceeds.

While Russian crude supply is being closely monitored, replacement barrels from the North Sea are expected to become scarce in the coming months. Loadings of the grades that make up the dated Brent benchmark will touch a 21-month low in June, while cargoes from the Johan Sverdrup will record a 21-month low amid a slew of planned maintenance.