Oil prices rose to their highest levels since March on Monday, after China indicated a decline in COVID restrictions and as European Union diplomats scrambled to reach an agreement on the Russian ban.
WTI crude added 0.57 percent to $115.72 a barrel, while Brent rose 0.75 percent to $116.43, recording its first gain above $115 since March 23 when pipeline upsets in the Caspian increased supply concerns.
Moves by China to ease zero-COVID restrictions in key regions boosted investors’ expectations for oil production. On Sunday, some public transportation services resumed in Beijing, and it intends to end a two-month shutdown in Shanghai on June 1.
Concerns over demand for oil from China’s economic powerhouse have dented crude prices, as the government implemented stringent measures to slow the coronavirus spread.
“Prices for markets in Shanghai and Beijing have fallen behind the rally in oil prices today, owing to fear of a viral outbreak. A China resumption is likely to boost oil demand,” Jeffrey Halley, senior market analyst at Oanda, stated.
“Unlike previous occasions, markets appear to be uninterested in oil returning to March highs, suggesting how much pent-up threat belief there appears to be out there,” he added.
According to Halley, while Brent crude was rising owing to EU efforts to get Hungary on board for a Russian oil embargo, other elements were also at play.
The major reason, according to him, is the tightening grip on refined products across the globe, which is pushing up the base material for all that diesel and petrol that has gotten pricey.
EU officials failed to break through Hungary’s resistance to a Russian oil ban before crunch talks among the bloc’s leaders on Monday. Ursula von der Leyden, the European Commission President is calling for a complete prohibition of all imports of Russian oil.
“Given that negotiation has not advanced enough, it’s improbable that members will reach an accord when they meet,” remarked Warren Patterson, ING’s head of commodities strategy.
Germany’s economy minister predicted on Sunday that the EU’s 27 member nations could already be splitting up against Russia.
“After Russia’s aggression against Ukraine, we’ve seen what can happen when Europe stands united,” Robert Habeck added. “But it is crumbling and crumbling once again.”
The EU diplomats have been in talks for close to a month. The European Union is considering an embargo in the next round of sanctions while struggling with Hungarian Prime Minister Viktor Orbán’s objections. The US and the UK have both banned Russian oil imports.
According to Reuters, one of the options under consideration is for EU sanctions to include an exemption for Russian oil supplied via the Druzhba pipeline to the Czech Republic, Slovakia, and Hungary.
Analysts expect that the start of the summer driving season in the United States will sustain increased commodity prices.
“The driving season and increased travel demand should help to keep prices elevated,” Giovanni Stauvino, a strategist with UBS, stated. “With supply increasing at a slower rate than demand, the oil market is expected to stay undersupplied.”