Oil prices rallied early on Monday amid EU consultations about potentially joining the U.S. in banning imports of Russian oil.
As of 7:45 a.m. ET on Monday, WTI Crude was up 3.87% at $108.91 and Brent Crude was trading up 3.93% at $112.30.
Separately, prices were driven higher after an attack from the Iran-aligned Houthi rebels over the weekend targeted energy facilities in Saudi Arabia, the world's top oil exporter and de facto leader of OPEC.
According to the Saudi energy ministry, strikes carried out by drones hit a distribution terminal for refined oil products in the region of Jizan, a refinery on the Red Sea port of Yanbu, and a natural gas plant.
In Europe, several EU countries, including Ireland and Lithuania, believe that the European Union should impose more severe sanctions on Russia, including on its energy sector. EU ministers begin today a week of consultations to decide whether and how to step up sanctions against Russian over its invasion of Ukraine.
France sees a potential ban on imports of Russian energy into the EU as an option, its Economy and Finance Minister Bruno Le Maire said over the weekend, adding that sanctions are hurting Russia and Vladimir Putin.
"Should we in the immediate stop buying Russian oil, should a little bit further down the line we stop importing Russian gas? The president has never ruled out these options," the French minister told LCI television in an interview on Sunday, as carried by Reuters.
However, the European Union and its biggest economy Germany have been reluctant so far to ban imports of Russian energy or impose sanctions on Russian oil and gas exports, considering that Europe depends on Russia for more than one-fourth of its oil supply and one-third of its natural gas supply.
Oil "rose to a one-week high in Asia as the war in Ukraine keeps global supplies very tight with traders, mostly through self-sanctioning, avoiding Russian crude, currently being offered close to 30-dollar below Brent with a limited number of buyers queuing up to secure cheap cargoes," Saxo Bank's strategy team wrote in a note on Monday.
"With supply tightening, the market will be looking for signs of demand destruction, mostly through the cost of diesel and gasoline as well as the impact of temporary covid related lockdowns in China," the bank's strategists added.
By Tsvetana Paraskova for Oilprice.com
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Comments
The United States took an ill thought decision to ban Russian oil imports estimated at 600,000-700,000 barrels a day (b/d) but it has yet to find replacement.
The EU, on the other hand, imports 30% of its oil needs from Russia estimated at 2.5-3.0 million barrels a day (mbd). In a very tight market like the current one, it will be almost impossible to replace Russian oil exports. Moreover, it will be paying a much higher import bill.
Moreover, the EU will be inflicting more damage on the global economy particularly the United States’ and its own economy without hurting Russia’s. Russian oil exports are already finding their way in increasing volumes to China, India and other countries with a big chunk of |Russian crude exports being bought by oil traders at discounted prices.
Neither OPEC+ nor Saudi Arabia, UAE, Venezuela combined or US shale oil can replace even a tiny volume of Russian oil exports without causing oil prices to surge upwards thus inflicting more damage on the global economy and on themselves.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London