The oil benchmarks are bullish at the start of the London trading session on Wednesday, paring early losses, as the threat of new sanctions on Russia raised supply concerns, countering fears of weaker demand following a build in U.S. crude stockpiles and Shanghai’s extended lockdown.
The global benchmark, the Brent crude futures is up 1.68%, currently trading $108.43 a barrel, after falling to $105.06 earlier in the Asian session. The United States benchmark, the West Texas Intermediate futures is up 1.76%, currently $103.75 a barrel, after dipping to as low as $103.17 in early trade.
The United States and its allies on Wednesday prepared new sanctions on Russia over civilian killings in northern Ukraine, which President Volodymyr Zelenskiy described as “war crimes.” Russia has so far, denied targeting civilians.
What you should know
- Proposed EU sanctions, which the bloc’s 27 member states must approve, would ban buying Russian coal and prevent Russian ships from entering EU ports.
- The head of the EU’s executive, Ursula von der Leyen said the bloc was working on additional sanctions, including on oil imports.
- Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown opined, “With allegations ramping up and new Western sanctions against Russia in the pipeline, further Russian economic retaliation looks inevitable. These concerns have no doubt fed into the oil price trending higher, with volatility expected to continue as the geopolitical situation unfolds.”
- Britain also urged G7 and NATO nations to agree a timetable to phase out oil and gas imports from Russia.
- Due to the impending new sanctions, there are now growing supply concerns which have now erased earlier price falls due to a stronger dollar, which makes oil more expensive for holders of other currencies, and a surprise build in U.S. crude stockpiles.
- The dollar edged up to its highest level in nearly two years on Wednesday after jumping overnight on more hawkish comments from a Federal Reserve official. The stronger dollar was felt in all markets, including the cryptocurrency market.
Demand worries also mounted after authorities in top oil importer China extended a lockdown in Shanghai to cover all of the financial centre’s 26 million people.
Member states of the International Energy Agency (IEA) were still discussing how much oil they would together release from storage to cool markets, three sources told Reuters, adding that an announcement was expected in coming days.