Crude Oil Reverses Higher on Threat of Russian Oil Embargo

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher late in the session on Thursday on low volume ahead of a public holiday. After early session weakness, the market is testing its high of the week, fueled mostly by end-of-the-week short-covering ahead of the long Easter holiday weekend.

At 20:25 GMT, June WTI crude oil futures are trading $105.98, up $2.19 or +2.11%. June Brent crude oil is at $111.39, up $2.61 or +2.40% and the United States Oil Fund ETF (USO) settled at $79.55, up $1.13 or +1.44%.

Oil Prices Slip Early, Recover Late

Oil prices were weighed down early in the session by a larger-than-expected build in U.S. oil stocks against tightening global supply. Both contracts on Wednesday had shrugged off a build in U.S. crude inventories to end the trading session over 4% higher.

Prices rose in the afternoon on news that the European Union might phase in a ban on Russian oil imports. The New York Times reported that the European Union was moving toward adopting a phased-in ban of Russian oil, to give Germany and other countries time to arrange alternative suppliers.

Threat of Russian Oil Embargo Shifts Momentum

After drifting sideways to lower for a little more than a month, June crude oil momentum has shifted to the upside. The threat of limiting access to Russian crude oil and crude oil products is the catalyst behind the change.

On Wednesday, the International Energy Agency (IEA) warned that from May onwards roughly 3 million barrels per day of Russian oil could be shut in due to sanctions or buyers voluntarily shunning Russian cargoes.

Meanwhile, global trading houses also plan to curtail crude and fuel purchases from Russia’s state-controlled oil companies in May, Reuters reported on Wednesday.

New Sources of Supply Will Be Needed

A phased-in ban of Russian crude oil and products would force European buyers “to seek alternative sources, some of which in the near term is being met by Strategic Petroleum Reserve (SPR) releases, but in the future, more supplies coming out of the ground will be required,” Andrew Lipow of Lipow Oil Associates in Houston said.

In response to this need, U.S. oil production forecasts are being revised upwards despite labor and supply chain constraints as higher prices spur more drilling and will completion activity, according to industry experts.

Meanwhile, U.S. oil rigs rose by two to 548 this week, their highest since April 2020, energy services firm Baker Hughes said in a report.