Oil up as Russian gas flow to Europe wanes, EU ban on Russian oil looms

Workers walk as oil pumps are seen in the background at the Uzen oil and gas field in the Mangistau region of Kazakhstan November 13, 2021. REUTERS/Pavel Mikheyev

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  • Crude rebounds after nearly 10% two-day drop
  • Hungary opposes EU embargo on Russian oil
  • Ukraine stops some Russian gas flows
  • Sharp increase in crude inventories in the United States, decline in gasoline

NEW YORK, May 11 (Reuters) – Oil prices jumped nearly 5% on Wednesday after plunging nearly 10% in the previous two sessions, buoyed by supply issues as Russian gas flows to Europe fell and the European Union struggled to gain support for a Russian oil embargo.

Russian gas flows to Europe via Ukraine fell by a quarter after kyiv halted use of a major transit route, blaming interference by Russian occupation forces. It was the first time that exports through Ukraine had been halted since the invasion. Read more

Brent crude rose $5.13, a 5% increase, to $107.59 a barrel as of 12:35 p.m. EDT (4:35 p.m. GMT). U.S. West Texas Intermediate crude climbed $5.68 to $105.44.

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“I suspect the gas disruptions in Ukraine are having a growing impact,” said OANDA analyst Jeffrey Halley.

The EU has proposed an embargo on Russian oil, which analysts say would further tighten the market and alter trade flows. A vote, which needs unanimous support, has been delayed as Hungary has sunk into opposition. Read more

“Prices will continue to rise, especially if the European Union reaches an agreement to phase out purchases of Russian oil over the remainder of this year,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

U.S. crude inventories rose more than 8 million barrels in the past week, due to another large release of strategic reserves, the Energy Information Administration said. Commercial crude inventories rose as the White House opted to flood the market with oil to offset rising prices.

However, fuel prices continued to rise due to declining refining capacity and growing demand for products worldwide, just as Russian exports were reduced. This pushed refining margins to near record highs in the United States. Despite rising crude inventories, gasoline inventories fell 3.6 million barrels in the past week.

“These draws are happening across commodities – we’re seeing refiners not being able to meet gasoline demand,” said Tony Headrick, energy market analyst at CHS Hedging.

Oil was also buoyed by hopes of a Chinese economic stimulus, after factory gate inflation in China eased and investors took comfort on signs of a decline in domestic COVID-19 infections. 19.

The price of crude surged in 2022 as Russia’s invasion of Ukraine compounded supply problems, with Brent hitting $139, the highest since 2008, in March. Concerns about growth caused by COVID curbs in China and interest rate hikes in the United States caused this week’s drop.

A tight supply backdrop due to what major producers say is partly the result of insufficient investment remains supportive for oil. The UAE’s energy minister highlighted those concerns on Tuesday.

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Additional reporting by Alex Lawler in London, Laura Sanicola and Arathy Somasekhar in New York; edited by Jason Neely, Louise Heavens, Tomasz Janowski and David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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