Oil prices climbed above $121 a barrel on Monday hitting a two month high as traders priced in expectations that the European Union will eventually reach an agreement to ban Russian oil imports.
The Brent crude futures contract for July, which expires on Tuesday, settled up $2.24 to $121.67 a barrel on Monday evening.
Traders also thought easing of Covid restrictions on China also drove up expectations that demand would increase.
Other indexes including US West Texas Intermediate (WTI) crude futures also jumped 1.7%, to $117.06 a barrel, extending solid gains made last week.
The EU is meeting on Monday and Tuesday to hash out a sixth package of sanctions against Russia for its invasion of Ukraine.
The EU gets about 40% of its natural gas and 25% of its oil from Russia, and Ukraine says those energy imports are funding Russia’s war on its neighbour.
But Hungary is leading a group of EU countries, along with Slovakia, the Czech Republic and Bulgaria, that rely heavily on Russian oil and cannot afford to take such steps.
Hungary gets more than 60% of its oil from Russia and 85% of its natural gas.
Finding agreement a tall order
Daniel Ghali, senior commodity strategist at TD Securities in Toronto, said: “Europe has been haggling about this for the better part of a month, but increasingly the market is pricing (additional sanctions) in as a risk.”
Leaders of the 27 EU countries will agree in principle to an oil embargo, a draft of their summit conclusions showed.
But finding an agreement on an EU oil embargo has so far proved to be a tall order.
“It’s still quite difficult for the European group to reduce its energy dependency on Russia in the near term,” said Leona Liu, analyst at Singapore-based DailyFX.
Any further ban on Russian oil would tighten a crude market already strained for supply amid rising demand for gasoline, diesel and jet fuel ahead of the peak summer demand season in the US and Europe.
Underscoring market tightness, the Organization of the Petroleum Exporting Countries and allies including Russia, a group dubbed OPEC+, are set to rebuff Western calls to speed up increases in output when they meet on Thursday.
They will stick to existing plans to raise their July output target by 432,000 barrels per day, six OPEC+ sources told Reuters. read more
EU to pledge support for Ukraine, but not ready with new Russia sanctions.