Oil rose more than $120 a barrel on Monday on rising fuel prices, such as gasoline and diesel, combined with lingering concerns over supplies from Russia to propel crude to its peak. highest level in two months.
Brent crude, the international benchmark, hit $120.50 a barrel, up 1% before the July contract expired on Tuesday. US benchmark West Texas Intermediate rose a similar amount to over $116 a barrel.
The recovery in crude oil comes as supplies of refined products, such as gasoline, remain tight in major delivery centers at a time when demand is expected to pick up in many countries, including the United States.
The drop in diesel exports from Russia, which many Western companies are avoiding or reducing after the invasion of Ukraine, has tightened markets even more than crude.
The gas oil contract in Europe, a proxy for diesel and other distillates, is trading at record highs near $1,200 a tonne.
Skyrocketing commodity prices mean motorists in many countries are paying record prices for diesel and gasoline, while crude is well below its all-time high of $147.50 a barrel, which it hit in 2008. The main summer driving season in the United States began on Monday. with the Memorial Day holiday.
A relaxation of Covid-19 restrictions and government subsidies have both helped support demand, said Keshav Lohiya of consultancy Oilytics.
“Despite record prices in local currencies, policy decisions like subsidies continue to distort the market,” Lohiya said. “Furthermore, post-Covid demand continues to maintain very high mobility in Europe, especially as summer approaches.”
In a sign of market pressures, traders are willing to pay a premium to immediately secure supplies due to market tightness. Brent for July delivery is trading at a premium of around $4 to August.
Analysts are also watching for any EU decision on restrictions or an outright embargo on Russian oil purchases in the coming days. Bloc MPs are scheduled to meet Monday and Tuesday. A total ban on Russian oil purchases has been opposed by some members like Hungary, but the EU is keen to increase pressure on Russia.
A summit of EU leaders starting Monday evening is expected to commit to including oil and petroleum products in a sanctions package, but will allow a ‘temporary’ exemption for crude delivered by pipeline, according to draft findings seen by the Financial Times .
The reluctance of the OPEC+ group to accelerate the increase in oil production is also supporting prices. The group meets on Thursday and is expected to stick to its plan to increase production by around 400,000 barrels per month, a target in place since last year.
Concerns over shipping through the Strait of Hormuz, through which a third of oil exports pass by sea every day, after Iran seized two Greek-flagged tankers on Friday, added to the factors driving up the price.
Greece, which has more supertankers sailing under its flag than any other country, has warned Greek tankers and other vessels to avoid sea waters near Iran.
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