Oil rose for a second day as the United States and Europe prepared to impose a new wave of sanctions on Russia for alleged atrocities committed by its forces against civilians in Ukraine.
West Texas Intermediate hit nearly $105 a barrel in early Asian trading after closing 4% higher on Monday, the biggest gain in two weeks. Washington will announce additional measures this week, according to national security adviser Jake Sullivan, who said these could include new energy restrictions.
Oil rose to its highest level since 2008 in the first quarter as the Russian invasion disrupted supply to an already tight market facing soaring demand and dwindling inventories. The United States and the United Kingdom have already taken steps to ban Russian oil and there is growing momentum for a similar form of action by the European Union, although its dependence on flow rate is higher.
The possibility of new sanctions offsets the impact on the global crude market of a large release by the United States of the country’s strategic oil reserves in an effort to control prices, ease the burden on consumers and curb inflation. Other countries have said they will also release oil.
With the war in its second month, European policymakers are facing increased pressure to impose a greater burden on Moscow. French President Emmanuel Macron said the EU would discuss possible oil sanctions, while German Finance Minister Christian Lindner said all economic ties with Moscow must be severed.
Oil futures continue to lag, an uptrend marked by short-term prices higher than longer-term ones. Brent’s quick spread – the spread between its two closest contracts – was US$1.65 a barrel, down from US$1.53 on Monday.
Goldman Sachs said the market likely had a shortfall of 1.5 million barrels per day in recent weeks, with inventories at the lowest in recent history on a demand-adjusted basis. The most attractive near-term opportunities were in distillates such as diesel and jet fuel, he said in an April 3 note.
Many Western companies do not buy Russian crude, although discounted exports are destined for buyers in Asia, including China and India. On Monday, commodity trader Trafigura Group offered to sell a Russian Urals-grade cargo at a record price, but there were no offers for the shipment.