Oil Prices Enjoy Modest Rise As Analysts Worry About Demand Reduction And Tight Supply

Meanwhile, the EU could impose a Russian oil ban by end of this year: File Image/Pixabay

Oil prices achieved minimal gains on Monday in a volatile trading session that saw West Texas Intermediate at one point fall under $100 due to the disclosure that China's severe Covid lockdowns caused a sharp contraction in economic activity in that country throughout April.

WTI settled up 48 cents to $105.17 per barrel and Brent settled up 44 cents at $107.58 per barrel.

Also, diesel prices surged nearly 5 percent ron the strength of ongoing signs of the market being extraordinarily tight – a phenomenon exacerbated by Europe and Latin America shunning oil products from Russia.

Dennis Kissler, senior vice president of trading at BOK Financial, said, "The imbalance of diesel demand versus supply worldwide is keeping buyers active on any weakness in crude."

The bullish sentiment driving oil was augmented by the European Union stating that it will try to impose a ban on Russian imports by the end of the year, and Germany stating it could end its dependence on Russia as early as this summer.

The anti-Russian sentiment on Monday continued with Poland urging EU members not to cave in to pressure to pay for their gas in Russian rubles as demanded by the former Soviet Union, as EU ministers met in Brussels to discuss their response to Russia's decision last week to cut gas supplies to Bulgaria and Poland (Gazprom says the two countries failed to pay their bills in April).

Anna Mowska, climate and environment minister for Poland, said, "We will call for immediate sanctions on Russian oil and gas: this is the next, and urgent, and absolute step.

"We already have coal, now it's time for oil, and [the] second step is for gas; the best option is take them all together."

Compromising the embargo efforts, however, is India, which has not only continued to buy deeply discounted Russian oil (23 million barrels in May alone) but is in talks to increase imports to 500,000 barrels per day (bpd) for the next six months starting in May.

However, in a market as currently tumultuous as oil, there were no shortage of bearish sentiments on Monday, and Ed Morse, global head of commodity research at Citigroup, told media that China oil demand is down more than 1 million bpd year-to-date and "doesn't look like that's going to come back anytime soon"; he added that gasoline consumption in the U.S. has stalled.

Still, the overwhelming consensus is that global demand is unstoppable and shortages are so severe that even a new wave of oil platforms sweeping into the Gulf of Mexico is regarded as too little too late, according to Bloomberg.

BP's Argos and Shell's Vito will start pumping crude later this year, joining Murphy Oil Corp.'s King Quay that started producing oil in April; platforms from Chevron Corp., Shell, and Beacon Offshore Energy are expected to start production in two years, and once all platforms are online they could reportedly produce up to 560,000 bpd.

James West, an analyst at Evercore ISI, remarked, "I think it has a future, but it's not as bright as it once was; there's probably some growth still left in the Gulf of Mexico, but it's a more modest growth."