Crude oil falls, but it is on track for strong weekly gains

After the revelation of a larger-than-expected rise in US oil stockpiles, oil prices dropped Thursday, giving back some of the week’s high gains in weak holiday-affected trade.US crude prices were 1.6 percent down at $102.62 per barrel, while Brent futures were 1.5 percent lower at $107.16 per barrel. Both benchmarks are still on track for increases of approximately 7% this week, despite the fact that Friday is closed for the Easter vacation.

The oil market has experienced robust trade this week, encouraged by reports that China, the world’s top importer of petroleum, has begun loosening mobility restrictions for some citizens in Shanghai, its financial center. Since the initial outbreak in 2019, the country has been seeing its highest outbreak of Covid cases

The tone has become negative with the release of data from the Energy Information Administration on Wednesday, which revealed that US oil stockpiles increased by more than 9 million barrels last week, far more than expected, increasing concerns about demand in the world’s top consumer.

Despite this, the war in Ukraine shows no signs of abating. President Joe Biden pledged an additional $800 million in military aid for Ukraine and the European Union, agreeing to send more money for weaponry as Russia repositions its soldiers for new operations.
“Clearly, the longer this goes on, the more pressure on EU members to act, and having targeted coal in the last round of sanctions, oil might very well be included in the next wave,” analysts at ING said in a statement.

The Organization of Petroleum Exporting Countries warned earlier this week that sanctions may result in losses of up to seven million barrels per day from Russian sources, and that number would be “difficult” to replace even if cartel members increased output significantly.

There is also the risk of greater disruption to the European energy market, following an internal European Commission letter stating that paying for Russian gas in rubles by European Union purchasers would violate the EU’s sanctions policy against Moscow.

If Vladimir Putin maintains the attitude he took in late March in an attempt to support his country’s faltering currency, this might imply that EU gas purchasers will no longer be able to purchase Russian gas. At a conference later next month, European Union leaders will explore unified gas purchases in order to avoid competing for other energy suppliers in the endeavour to phase out imports from Russia.