Oil steadies as EU stalemate deepens on Russian oil embargo

(Bloomberg) — Oil eased off earlier gains with the European Union’s ban of Russian oil looking increasingly unlikely to pass. 

West Texas Intermediate futures fell below $110 a barrel. The EU’s proposal to phase out Russian oil has reached an impasse, with Hungary continuing to oppose the embargo. Eastern Europe is highly dependent on Russian crude, as Russia shipped about 720,000 barrels a day of crude through its main pipeline to the region last year.

“The blowback of passing the ban would be so extreme” that crude could be close to touching all-time highs, said Bob Yawger, director of the futures division at Mizuho Securities USA. “The most likely scenario is not an EU ban on imports. It’s more along the lines of the G7 countries to impose tariffs on Russian Barrels and price out Russian crude oil.”

Oil has surged this year on rising demand and the complex global fallout from Russia’s invasion, and money managers have also boosted bullish crude bets. The rise in energy costs has contributed to rampant inflation, prompting central banks to raise rates and stoking investor concern growth will slow. The Biden administration is considering tapping a little-used emergency diesel fuel reserve to mitigate the supply crunch amid Russia’s invasion of Ukraine, according to a White House official.

The head of the International Energy Agency and India’s oil minister, speaking at the World Economic Forum in Davos, issued warnings on the risk of high prices.

“We may see prices even going higher, being much more volatile and becoming a major risk for recession for the global economy,” IEA Executive Director Fatih Birol said in an interview with Bloomberg TV from Davos.  

In remarks reported at the weekend, Saudi Arabia signaled it will continue to support Russia’s role in the OPEC+ group of producers, undermining US-led efforts to isolate Moscow for its invasion of Ukraine, the Financial Times said. The kingdom was hoping to work out an agreement with OPEC+ which includes Russia, Energy Minister Prince Abdulaziz bin Salman told the newspaper. 

At the same time, China has imposed a series of painful lockdowns to quell Covid-19 outbreaks, hurting Asia’s largest economy. In Shanghai, officials have laid out the criteria on how to categorize the area as low-risk for Covid-19 as they look to end a two-month lockdown. Beijing, however, reported a record number of cases, reviving concern that the capital may face a lockdown.

Oil markets remain in backwardation, a bullish pattern that’s marked by near-term prices trading above longer-dated ones. The difference between WTI’s two nearest December contracts, for this year and in 2023, was near $13 a barrel, up from about $11 a barrel a month ago.