Oil Unchanged As Promises of EU Ban Against Russia Become Shaky

Meanwhile, existing bans are having little impact against the former Soviet Union: File Image/Pixabay

The possibility that the European Union will not impose bans on oil from Russia after all caused oil trading on Monday to be little changed from last week's close – although the demand and supply shortages that have driven prices higher of late are as strong as ever.

After people with knowledge of the matter told media that the government of Hungary is signalling that any progress on the EU talks will likely slip to next month at the earliest, West Texas Intermediate settled up 1 cent, or 0.01 percent, at $110.29 per barrel, while Brent settled up 87 cents, or 0.7 percent, at $113.42.

Also, Saudi Arabia over the weekend undermined U.S.-led efforts to punish Moscow for its invasion of Ukraine by signalling it will continue to support Russia's role in the Organization of the Petroleum Exporting Countries (OPEC).

Bob Yawger, director of the futures division at Mizuho Securities USA, remarked, "We are stuck in a range from $105-$116 and we're looking for a breakout," and he added that a European embargo on Russia would likely propel crude prices to all-time highs.

It remains unclear what in fact will transpire with the EU: countering sentiments from anonymous sources on Monday was Mark Rutte, prime minister of Holland, who said when asked if he expects an oil boycott next week, "I am optimistic about a sixth sanction package."

Robert Habeck, Germany's economy minister, added, "I expect what will happen, as is always the case in Europe, is that some countries will effectively get special rights."

For the record, Europe's existing bans are having little to no impact other than stoking traders' fears and helping along price increases: according to vessel-tracking data and port agent reports released Monday, seaborne crude shipments from Russia edged lower in the seven days to May 20 but showed little clear impact from the EU restrictions that came into effect on May 15.

A total of 32 tankers loaded about 24 million barrels from Russian terminals, putting average seaborne crude flows at 3.44 million barrels per day (bpd), down by just 3 percent from 3.55 million barrels in the week ended May 13.

Conversely, many experts questioned the wellbeing of the global economy: Kristalina Georgieva, managing director of the International Monetary Fund, told the annual Davos economic summit that she did not expect a recession for major economies but could not rule one out either.

As for the health of the commodity itself, oil remains in the bullish state of backwardation, and the difference between WTI's two nearest December contracts (for this year and in 2023) was near $13 per barrel, up from about $11 per barrel a month ago.

In other oil related news on Monday, the market welcomed China's intentions to make changes to its ruinous zero Covid policy whose most recent lockdowns have caused economic chaos in major cities; under the current policy, Beijing reporting 99 new cases on May 22 (out of a total population of 21.5 million people) makes hopes slim that the lockdowns will be eased.