Oil Skyrockets On Tough EU Sanctions Against Russia

The question now is how Europe will compensate for the lost energy supplies: File Image/Pixabay

The European Union’s long-anticipated announcement of a strict ban of energy supplies from Russia caused flip-flopping traders on Wednesday to forget their demand destruction concerns for the time being and propel oil prices by the highest amount in three weeks.

West Texas Intermediate rose $5.40 to settle at $107.81 per barrel, while Brent settled up $5.17 $110.14 per barrel after European Commission president Ursula von der Leyen declared that “This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined.”

She added that supplies of Russian crude will be cut off within six months and refined products by end-2022; for the record, Russia shipped about 720,000 barrels per day (bpd) of crude to European refineries through its main pipeline to the region last year.

Bjarne Schieldrop, chief commodities analyst at SEB, remarked, “Russian oil is now ‘bad oil’; this energy war of ‘good oil’ versus ‘bad oil’ has just started.”

Unsurprisingly, European energy prices also jumped on Wednesday due to the news, with gas,  electricity, and coal prices jumped more than 4 percent.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said of Poland and Bulgaria being denied shipments from Russia due to a dispute over payment terms, “Our central scenario envisions more interruptions of Russian gas supplies to Europe going forward.

“Some of the targeted countries may experience economic stagnation or mild contractions in the process.”

In addition to energy supplies from the U.S. being tapped by Europe to partly compensate for the loss, gas deliveries from Norway, Europe’s second-biggest gas supplier, increased on Wednesday after an end of maintenance work.

Meanwhile in the U.S., the Energy Information Administration reported that stocks were up 1.2 million barrels as Washington released more barrels from strategic reserves; however, fuel stocks fell in part due to stronger exports of products in the wake of international outrage over Russia’s invasion of Ukraine.

As for further trading influences this week, all eyes are on a Thursday meeting of the Organization of Petroleum Exporting Countries (OPEC) and its allies on production policy, in which it is expected that the cartel will stick to its policy for another modest monthly production increase.

This along with other factors may see further increases for key crude benchmarks, and Phil Flynn, senior market analyst at Price Futures Group Inc., said of Europe weaning itself off of Russian oil and products, “Inventories are so tight, so against this backdrop, when you’re talking about this ban, there are a lot of questions on how [Europe] is going to make up for this.”