Oil prices jumped on Wednesday as the European Union, the world’s largest trading bloc, spelled out plans to phase out imports of Russian oil, offsetting demand worries in top importer China.
Brent crude futures rose US$2.94, or 2.8%, to US$107.91 a barrel by 0746 GMT amid thin trading volume, with China and Japan closed for holidays. West Texas Intermediate crude futures rose US$3.02, or 3%, to US$105.43 a barrel.
European Commission President Ursula von der Leyen on Wednesday proposed a phased oil embargo on Russia over its war in Ukraine, as well as sanctioning Russia’s top bank, in a bid to deepen Moscow’s isolation.
The Commission’s measures include phasing out supplies of Russian crude within six months and refined products by end-2022, von der Leyen said. She also pledged to minimise the impact on European economies.
Investors are also waiting for an announcement from the U.S. Federal Reserve on Wednesday. It is expected to intensify efforts to bring down high inflation by raising interest rates and reducing its balance sheet.
Oil “prices remain in a holding pattern ahead of EU sanctions and the Fed,” Stephen Innes of SPI Asset Management said in a note.
In the United States, crude and fuel stocks fell last week, according to market sources citing American Petroleum Institute figures. Crude stocks fell by 3.5 million barrels for the week ended April 29, they said. This was more than an expected 800,000-barrel drop estimated in a Reuters poll.
U.S. government data on stocks is due on Wednesday.
Oil prices fell more than 2% on Tuesday on demand worries stemming from China’s prolonged COVID-19 lockdowns that have curtailed travel plans during the Labour Day holiday season.
The global manufacturing purchasing managers index contracted in April for the first time since June 2020, with China’s lockdowns a key contributor, Caroline Bain, chief commodities economist at Capital Economics said in a note.
“The big picture is clearly negative for commodities demand,” she said, adding that rising inflation and higher interest rates were starting to bear down on spending.
“While supply constraints may keep commodity prices elevated for some time yet, we think subdued demand will weigh on most prices later this year and in 2023,” Bain said.
The Organization of the Petroleum Exporting Countries and their allies on Thursday are expected to stick to their policy for another monthly production increase.