Oil prices surged to levels last seen in March on Tuesday, after the European Union reached an agreement that is poised to ban most of Russian oil by the end of the year.
Price action
- West Texas Intermediate crude for July delivery CL.1, +3.07% CLN22, +3.07% rose $3.17, or 2.7%, to $118.24 a barrel, a level not seen since early March On Friday, WTI climbed 0.9% to close at $115.17 a barrel on the New York Mercantile Exchange, the highest close for a front-month contract since March 11, according to Dow Jones Market Data.
- July Brent crude BRNN22, +1.35% rose $1.73, or 2.1%, to $123.78 a barrel, on ICE Futures Europe. August Brent BRN00, +1.46% BRNQ22, +1.46%, the most actively traded contract, was up $1.69, or 1.4%, at $119.29 a barrel.
- June gasoline RBM22, +3.07% rose 3.1% to $4.139 a gallon, while June heating oil HOM22, +5.40% surged 5.4% to $4.219 a gallon.
- July natural gas fell NGN22, -2.56% fell 2.5% to $8.505 per million British thermal units.
Market drivers
U.S. investors returning from Monday’s Memorial Day holiday were greeted by news that European Union leaders hammered out a deal to punish Russia over its invasion of Ukraine, by cutting its need for the warring nation’s energy assets.
The watered-down embargo covers Russian oil brought in by sea, with a temporary exemption for imports delivered by pipeline, required to bring Hungary on board. The EU said the agreement covers more than two-thirds of oil imports from Russia, and should cut 90% of that country’s crude by the end of this year.
“Even though oil advanced to levels that look interesting for selling a top, the positive pressure is too strong for betting on a downside correction in the short run. Shorting oil has become a risky bet, as following the European ban, there is a stronger case building for a further extension of the gains,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a note to traders.
Ozkardeskaya said the “relentless positive pressure” on oil prices on both sides of the Atlantic was worry, even as U.S. inflation figures have been easing.
However, data released Monday showed Germany’s annual rate of inflation in May posted the highest reading in 50 years. Meanwhile, the eurozone’s annual rate of inflation accelerated again in May, reaching its highest level ever. Eurozone consumer prices rose 8.1% on year in May after climbing 7.4% in April, according to a first estimate released Tuesday by Eurostat, the European Union’s statistics agency.
Front-month Brent crude for July has gained more than 11% this month, with July West Texas Intermediate crude up 9.9%. It will mark the sixth straight monthly rise and longest monthly streak for each since April 2011, according to Dow Jones Market Data. It’s the biggest monthly rise since January for each as well.
Also boosting prices was news of easing restrictions in China, the world’s biggest crude importer. Shanghai authorities said they would take major steps Wednesday toward reopening after a two-month COVID-19 lockdown in the country’s biggest city. Beijing relaxed pandemic restrictions on Sunday, declaring a recent outbreak under control.
Data released Tuesday showed Chinese factory and service-sector activity improved in May, though overall the gauges still showed a contraction in economic activity as the country has grappled with COVID lockdowns.
Crude’s rise comes ahead of Thursday’s virtual meeting of Organization of the Petroleum Exporting Countries and non-members including Russia, to discuss production plans. The cartel is expected to adhere to an oil production deal agreed last year and lift July output targets by 432,000 barrels a day.
The U.S. benchmark’s highest finish in more 11 weeks on Friday came as summer driving season kicked off over the Memorial Day weekend, and inventories remain at low levels. Headed into the holiday, the U.S. average retail price of regular gasoline was $4.59 a gallon), the highest inflation-adjusted (real) price since 2012, according to the U.S. Energy Information Administration.
Read: Sky-high gas prices aren’t stopping Americans from hitting the road this summer
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