Commodities News

Oil Up Over More Potential Sanctions on Russian Supply, Tight Market

By Gina Lee – Oil was up on Tuesday morning in Asia, reversing its losses from the day before. Investors are calculating the probability of more sanctions on Russia’s energy sector and digesting an Organization of the Petroleum Exporting Countries (OPEC) warning that it would be impossible to replace the lost Russian supply.

Brent oil futures rose 1.80% to $100.25 by 12:14 AM ET (4:14 AM GMT) and crude oil WTI futures jumped 1.96% to $96.14.

Both Brent and WTI contracts settled down around 4% on Monday as COVID-19 lockdowns in China drove fuel demand concerns and the International Energy Agency prepares a massive oil reserve release.

The organization plans to release some 240 million barrels over the next six months, of which 180 million will be released from U.S. stockpiles at a rate of one million bpd starting in May 2022.

The European Union is also drafting proposals for a block-wide oil embargo on Russia in response to its invasion of Ukraine on Feb. 24, according to some foreign ministers. However, an agreement has yet to be reached on whether the ban will include crude supplies from Russia.

“The oil market is still vulnerable to a major shock if Russian energy is sanctioned, and that risk remains on the table,” OANDA senior market analyst Edward Moya said in a note.

“Oil prices will play tug-of-war here as crude inventories remain low, but energy traders will struggle to shake off these steady announcements of new COVID restrictions in China,” the note added.

Meanwhile, OPEC warned that losses from Russian oil and other liquids exports due to existing sanctions could be as much as seven million barrels per day. It added that the volume will be “impossible” to replace.

Investors now await U.S. crude oil supply from the American Petroleum Institute, due later in the day.

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