Brent gains as EU sanctions on Russian crude approach

Front-month ICE Brent has moved $0.52/bbl higher on the day from Friday, to $91.80/bbl at 09.00 GMT.

PHOTO: EU sanctions on Russian crude imports will enter into force from 5 December, followed by refined petroleum products on 5 February next year. Getty Images

Upward pressure:

With about six weeks left before EU sanctions on Russian crude oil imports will come into force, the market questions how these volumes will be replaced. And the recent OPEC+ move to cut production quotas could add an additional squeeze on global supply.

Last week's announcement by US President Joe Biden to release 15 million bbls of crude oil from US Strategic Petroleum Reserves (SPRs) did little to ease these supply concerns. The release is part of a total 180 million bbls release announced in May this year.

Some market participants think the US government could announce another 100 million bbls SPR release in an effort to control rising domestic gasoline prices ahead of the US mid-term elections next month.

"Biden’s comments that the US will only buy crude once prices hit USD70/bbl provides a strong support level," ANZ commodities strategist Daniel Hynes says.

Downward pressure:

Crude values have seen some headway from weak Chinese crude oil imports data. The country imported 9.79 million b/d of crude oil in September, a drop of 1.62% from September last year.

Even if Chinese imports have recovered from multi-year lows of 8.72 million b/d in June this year, they remain relatively low. China’s relentless zero-Covid policy has kept a lid on oil demand from the world’s largest crude importer.

US Federal Reserve (Fed) policymakers have indicated there could be another 75-basis point hike on the cards when they meet next month. Interest rate hikes typically push the US dollar up and make Brent and other commodities priced in dollars more expensive for buyers.

By Nithin Chandran

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