Oil prices are up four per cent heading into next week, with China set to ease some of its heavy pandemic restrictions while the European Union (EU) inches towards a ban on Russian crude imports.
At the close of Friday’s session Brent futures rose 3.8 per cent, climbing to $111.50 per barrel, while WTI Crude rose 4.1 per cent to settle at $110.50.
This was the highest close for WTI since late March and its third straight weekly rise, although Brent fell for the first time in three weeks.
The rebounds late last week reflected more encouraging conditions for both major benchmarks, with several factors that were weighing down prices beginning to ease.
City officials in Shanghai have announced they will start to reduce coronavirus traffic restrictions and open shops later this month, raising the prospect of China’s biggest city being open for business once again and increased oil demand.
“Crude prices rallied on optimism that China’s COVID situation was not worsening and as risky assets rebounded,” explained Edward Moya , OANDA’s senior market analyst.
Oil prices had been hit earlier last week by rising inflation and a resurgent dollar, alongside downgrades in demand expectations from both OPEC and the International Energy Agency (IEA).
EU oil ban looms for Russian imports
The EU is closing in on an oil embargo as part of a sixth package of sanctions following Russia’s invasion of Ukraine, with only Hungary continuing to withhold support for a phase out of Russian crude supplies.
If enacted, it could take 3m barrels per day of Russian oil offline, with EU dependent on Russia for 25 per cent of its supplies, and remaining Gazprom’s biggest buyer – responsible for over half its sales.
It has previously announced restrictions on Russian coal, while the UK and US has already targeted Kremlin-backed oil supplies.
“An EU embargo, if fully enacted, could take about 3m barrels per day of Russian oil offline, which will completely disrupt, and ultimately shift global trade flows, triggering market panic and extreme price volatility,” said Rystad Energy analyst Louise Dickson.
In response to incoming Western measures, Russia has slapped sanctions of European Gazprom divisions, and last month signed into law demands for overseas buyers to pay for gas in roubles.
It has since cut off supplies to Poland and Bulgaria, and is weighing up similar restrictions on Finland after it confirmed plans to join NATO.
Ricardo Evangelista, senior analyst at ActivTrades argued prices remain volatile and influenced by competing and rapidly evolving geopolitical factors.
He said: “There are two opposing forces dictating the markets stance in relation to oil; supply side concerns support the price of the barrel, with the ongoing war in Ukraine and the prospect of the EU imposing a full ban on imports of Russian oil likely to cause a drop in availability amidst an already tight market.”
“However, such price gains are capped by fears over the impact that inflation, and the slowing down of economic activity in China, due to the COVID related lockdowns, will have on demand.”
Meanwhile, the West remains split on progressing talks with Iran over a nuclear deal, which could flood the market with millions of barrels of oil.
The EU said there was enough progress to relaunch nuclear negotiations with Iran, however the US said there was no agreement yet and no certainty that one might be reached.