Oil prices reach their highest level in two months, and Brent crude is near $120

Oil prices reach their highest level in two months, and Brent crude is near $120

Oil prices rose in trading today, Monday, May 30, 2022, recording their highest levels in more than two months before the European Union meeting on imposing new sanctions on Russia.

The oil market is awaiting whether the new package of European sanctions may reach Russian oil imports, in light of intense consultations within the bloc to reach a unified agreement, with the opposition of some countries, led by Hungary.

Oil Prices Today

The price of the futures contracts for the benchmark Brent crude – for delivery next July – rose by 0.79%, to reach $119.95 a barrel, after falling below $117 during the session.

Also, the price of West Texas Intermediate crude future contracts – for delivery next July – increased by 0.59%, recording 115.77 dollars per barrel.

On Friday, oil prices ended their trading on a rise, after a volatile session; Brent crude and West Texas crude gained about 6.1% and 4.3%, respectively, during the past week.

European Sanctions Package

The European Union is scheduled to meet on Monday and Tuesday; To discuss the sixth package of sanctions against Russia for its invasion of Ukraine, measures Moscow describes as a “special military operation.”

“If we look at the recent price action, the market seems to have taken into account that the EU may come to an agreement on some form of restrictions on Russian oil,” said Madhavi Mehta, commodity research analyst at Kotak Securities.

She added, “We may only see more upside if the complete ban is…and any deal that is watered down or includes exceptions, may not have a significant positive impact.”

Russian Oil Embargo

European Union governments failed to agree on a Russian oil embargo on Sunday, officials said, but would continue talks on a deal to ban seaborne shipments of Russian oil while allowing pipeline deliveries, ahead of Monday afternoon’s summit.

Analysts believe that any additional ban on Russian oil will tighten the crude market, which is already under pressure on supplies amid increased demand for gasoline, diesel and jet fuel ahead of the peak summer demand season in the United States and Europe.

Oil Demand

Traders said that high refining margins for diesel and gasoline in Europe and the United States pushed the prices of some types of physical crude oil to record levels.

Underlining the market’s tightness, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, collectively called OPEC+, are set to reject Western calls to accelerate increases in their oil production when they meet next Thursday.

Six OPEC+ sources said it would stick to current plans to add 432,000 barrels per day in July

Oil Market Tensions

The oil market was tense after Iran said on Friday that its navy had seized two Greek oil tankers in retaliation for the United States’ seizure of Iranian oil from an oil tanker off the Greek coast.

“This raises the specter of further disruptions to oil flows through the Strait of Hormuz, which carries a third of global trade,” ANZ analysts said in a note.

Oil prices also received support from the decline in the US dollar; Investors reduced expectations of a US interest rate hike and waned concerns about a global recession. A weak dollar usually makes oil less expensive for importers holding other currencies.

Bank Of America Expects Oil Prices To Exceed $150 A Barrel

Bank of America Global Research announced its forecast for oil prices in the event of a contraction in Russian oil exports, in the wake of the Ukraine war, with the exclusion of a recovery in oil demand this year.

“With our target for Brent approaching $120 per barrel, we believe a sharp contraction in Russian oil exports could push Brent above $150 per barrel,” the bank said in a research note.

Bank of America forecast that Brent prices will average $104.48 a barrel in 2022, and $100 a barrel in 2023.

Oil prices were on track for weekly gains on Friday, buoyed by the prospect of market tightness due to increased US gasoline consumption in the summer, and the prospect of a European Union embargo on Russian oil.

Oil Demand Recovers

Analysts do not expect oil demand to recover to pre-Coronavirus levels in 2022, due to persistent supply problems, according to information seen by the specialized energy platform.

“An oversupply of $30 per barrel in oil prices this year has reduced demand by 1.5 million barrels per day, preventing a recovery to pre-pandemic levels,” the bank’s analysts said.

They also noted that oil demand could approach pre-pandemic levels next year, if Russian oil production stabilizes near 10 million barrels per day, and OPEC+ supplies increase.

Warnings Of Rising Oil Prices

Russian Deputy Prime Minister Alexander Novak had sent a strongly worded message to the West and Europe, with oil prices rising to unprecedented levels, if sanctions were imposed on his country.

He explained – in statements last March – that crude prices may exceed $ 300 a barrel, if a ban on oil imports from Moscow is imposed.

Novak also warned of what he called “catastrophic consequences” for the global market, if the United States and Western countries take sanctions up to the Russian oil embargo.