Oil keeps rising as US moves a step closer to Russia crude ban

Oil pushed higher as the US moved a step closer to imposing a ban on Russian crude imports following its invasion of Ukraine.

West Texas Intermediate rose above $121 a barrel after settling at the highest level since 2008 on Monday. The fallout from the war has upended markets, driving everything from wheat to nickel and gasoline higher and leaving the world bracing for an inflationary shock. Oil has rallied more than 30% since the invasion and traders and banks are betting prices will keep climbing.

Read: Oil shoots near $130 as chance of Russian ban spurs crisis fears

Key US lawmakers announced the outline of bipartisan legislation to bar Russian crude imports into the US, although European Union governments are divided about whether to join the action. Russian oil is becoming unwelcome in global markets, with more offers lapsing without any bidders and TotalEnergies SE saying its traders will no longer buy the nation’s supplies.

US Secretary of State Antony Blinken told NBC over the weekend that the White House was in “very active discussions” with Europe about a crude ban to tighten the economic squeeze on President Vladimir Putin. Most buyers are refusing to take it anyway, resulting in an embargo in all but name.

The world doesn’t have sufficient oil-production capacity to replace Russia’s contribution to crude markets, OPEC Secretary General Mohammad Barkindo said at CERAWeek by S&P Global in Houston on Monday. Chevron Chief Executive Officer Mike Wirth said at the same event that there’s no evidence of physical oil or gas shortages yet, despite the huge spike in prices in recent days.

Surging oil prices and supply fears are also boosting fuel prices, with diesel futures in Europe and the US touching the highest levels in decades. American pump prices are just cents away from an all-time high set 14 years ago.

Prices

• West Texas Intermediate crude for April delivery rose 1.7% to $121.40 a barrel on the New York Mercantile Exchange at 11:24 a.m. in Singapore after increasing 3.2% on Monday.
• Brent for May settlement climbed 2.6% to $126.44 a barrel on the ICE Futures Europe exchange.

“The question of what will drive oil lower and when will we know if demand destruction is setting in is becoming a far more topical and relevant conversation,” said Stephen Innes, managing partner at SPI Asset Management Pte. “Disruptions to energy markets and the possibility of a geopolitical paradigm shift make for a highly unpredictable environment.”

Brent remains in deep backwardation, a bullish market structure where prompt contracts are more expensive than later-dated ones, highlighting the very tight supply backdrop. The global benchmark’s prompt spread was $4.36 a barrel, compared with $1.39 at the start of last month.

Some cracks are starting to show across oil markets as soaring costs begin to bite, with refiners across Asia considering cuts to crude processing as margins shrink. Freight rates have also surged, adding to increasing pressure on refiners that had just recovered from the pandemic.

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