THE NAGA GROUP AG Oil prices rose 3% to a two-month high on Friday following the prospect of an EU ban on crude imports from Russia and the impending US summer driving season. Brent crude is now set for its biggest weekly jump in six weeks.
How is the EU ban on Russia affecting oil prices?
The oil prices have increased following the EU's efforts to ban Russian oil. The uncertainty surrounding the lingering deliberations among EU member states, especially Hungary, is also contributing to the volatility in prices. The Hungarian government has insisted that the EU should provide alternatives and solutions first before sanctions. EU sanctions require unanimous support, and Hungary wants about 750 million euros ($800 million) to revamp its refineries and expand a pipeline from Croatia. However, the European Council President Charles Michael stated his confidence in an agreement before the council's next meeting on May 30.
Although there is no formal ban yet, many oil traders have boycotted supplies from the country. Russia's oil production is expected to dip by 20% from 524 million tonnes in 2021.
When is the US summer driving season?
Oil prices are heading for a fifth weekly gain before the US summer driving season. The Northern Hemisphere's peak driving season should kick off this weekend on May 30, and it will last until Labour Day in early September. It is the time refiners across the country increase the production of transport fuels due to spring turnaround and maintenance. According to a senior market analyst at OANDA, "Crude prices soared as a tight oil market is on the horizon following the summer driving season, which will keep US stockpiles in a downward trajectory".
Rise in equities, Fall in USD
Traders also stated the rise in oil prices is in response to the recent rally in equities and a decline of the US dollar against other currencies, making oil cheaper when purchased in other currencies.
Brent futures jumped 3.0% to $117.40 a barrel, its highest since March 25. US West Texas Intermediate (WTI) also rose by 3.4% to $114.09, reaching its highest since May 16.
Other factors affecting oil prices
Shanghai is reopening
Shanghai is preparing to reopen after a two-month lockdown. As Shanghai reopens on June 1, we could see an extreme increase in oil demand. China is the world's top importer, and the lockdowns which have followed its zero covid strategy have crippled industrial output.
UK imposes windfall tax
The Uk government has also bowed to pressure to support the unprecedented challenge in living standards facing many Britons by imposing a 25% windfall tax on oil and gas companies.
When is OPEC meeting?
OPEC is expected to rebuff Western calls to lower surging prices in its June 2 meeting. According to Reuters, the body may stick to last year's oil production deal by raising July output targets by 432,000 barrels per day.
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NAGA Group AG published this content on 27 May 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 June 2022 13:01:01 UTC.
