Oil prices rebounded as the European Union (EU) closes in on a Russian oil embargo, raising concerns of supply shortages across the continent.
Brent Crude prices have risen 3.17 per cent to $105.70 per barrel, while WTI Crude has climbed 3.49 per cent to $103.20.
This follows both major benchmarks plunging nearly 10 per cent in the last two sessions amid escalating geopolitical volatility.
The trading bloc is pushing for a phase out of Russian oil supplies over the next six months, as part of a sixth package of sanctions following Russia’s invasion of Ukraine in February.
However, the measure needs unanimous support and Hungary remains opposed to the move.
While Czechia, Slovakia and Bulgaria have secured special terms for the embargo, and have agreed to phase out Russian oil imports over the next two years instead, Hungary is also calling for pipeline supplies to be exempt from the proposed ban.
Hungary’s foreign minister Peter Szijjarto has warned that sanctions in their current form would be highly damaging to its country’s economy.
He said: “Brussels has no proposal for a solution…which could handle the atomic bomb like impacts of this potential oil embargo against Russia on Hungary’s economy.”
This follows talks between Hungarian Prime Minister Viktor Orban and European Commission President Ursula von der Leyen, and later negotiations on the phone with French President Emmanuel Macron.
Separately, flows of Russian gas to Europe through a key transit point in Ukraine dried up, bringing the prospect of shortening supplies from Russian into reality.
Oil prices also gained on hopes of Chinese economic stimulus after China’s factory-gate inflation eased and investors took comfort in signs of lower domestic COVID-19 infections.
Craig Erlam, senior analyst at OANDA, told City A.M.: “I think we are going to see a ban, the question is how it’s phased in and whether it will be particularly effective as a result. The longer they take to implement the ban, the more opportunity Russia will have to find alternative markets. That may come at a discount to begin with which will have a financial impact but considering the levels oil is trading at, that doesn’t really matter.”
“Other markets won’t be as convenient for Russia which is a problem but not as much as it would be for gas, for example. It’s important that Europe continues to transition away as quickly as possible so that maximum pressure can be imposed and they aren’t effectively facilitating the war in Ukraine with those funds.”
Ole Hansen, head of commodity stategy at Saxo Bank, said: “Russia is likely to find other buyers more easily than for Europe to find an alternative seller. Having spent recent decades building up a Russian energy dependency, a move to exclude Russian oil and products will likely take longer than planned. With this in mind, a watered-down version or longer deadline may end up being the result. Not least considering Hungary has hardened its public stance against an EU embargo, saying it would withdraw its veto threat only if its imports via pipelines are excluded.”