Oil Spikes After Saudi Hiked OSPs, EU Mulls Russian Oil Ban

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange powered higher in afternoon trade Monday, with both U.S. and international crude benchmarks gaining more than 4% after Saudi Aramco raised its official selling prices for Asian and European buyers next month, signaling strong demand growth despite signs of demand destruction in some major oil-consuming economies, while escalating violence in Ukraine against civilians led to renewed calls to enforce an official ban on Russian energy exports.

The war in Ukraine continues to drive the narrative in the oil market after grim images of battered bodies left in the open on the streets of Bucha in the outskirts of Kyiv sparked calls for tougher sanctions against the Kremlin, namely a cutoff of fuel imports from Russia. French President Emmanuel Macron said on Monday there is "clear evidence of war crimes" in Bucha that demand new punitive measures, adding "I'm in favor of a new round of sanctions and in particular on coal and gasoline."

Germany, however, maintained its posture that phasing out Russian energy exports is simply unattainable at the moment due to a high degree of reliance on Russian oil, gas, and coal imports. For reference, about half of Germany's imports of gas and hard coal, and about one-third of its oil imports originate from Russia. In total, Germany depends on Russia for about one-third of its total energy consumption.

Within the German economy, gas is predominantly used for industrial production, accounting for roughly 36% of demand, followed by households with 31%, and trade and commerce at about 13%. Should Germany cut off Russian gas imports, it would mostly affect the industrial backbone of the German economy -- a step politicians have been reluctant to take. Instead, Germany expelled 40 Russian diplomats and Lithuania threw out its Russian ambassador in the aftermath of Bucha massacre.

It's worth noting that as Russian troops continue their withdrawal, more atrocities are being found across previously occupied areas of Ukraine, making it more difficult for European governments to avoid sanctions on Russia energy.

Separately, Saudi Aramco raised its official selling prices (OSP) across the board for May loading cargoes, with Asia-bound barrels seeing the largest increases, between $2.70 and $4.40 barrel (bbl), according to a pricing document Aramco released Monday. For Northwest Europe-bound crude, Aramco lifted its extra light grade the most, by $3.80 to an $8.10 bbl premium to ICE Brent, and its light grade increased $3 to a $4.60 bbl premium. Arab medium was increased $1.40 to a $1.90 bbl premium, while Arab heavy rose 30 cents to a $1.10 bbl discount to ICE Brent.

For U.S.-bound crudes, Aramco increased all grades by $2.20 from April. The April extra light OSP was set at a $7 bbl premium over ASCI. Arab light, medium, and heavy grades were up as well at premiums of $5.65 bbl, $4.95 bbl, and $4.50 bbl, respectively. The price move was largely expected by the market due to volatility spurred by the Russia-Ukraine war.

The oil complex came under mild selling pressure overnight after authorities in China's financial capital of Shanghai extended a lockdown originally scheduled to last 10 days for an undetermined period following recent shutdowns in Shenyang and at the country's tech hub in Shenzhen. Shanghai, China's most populous city with some 25 million inhabitants, has largely been at a standstill as China battles its worst wave of coronavirus infections since the start of the pandemic.

China's economy has taken a gut punch from the recent COVID-19 resurge, with fresh data on China's manufacturing showing business activity for the sector fell into contraction last month. In the United States, manufacturer activity continues to grow, but the business sector suffers from similar issues as their global competitors, albeit to a lesser degree due to plentiful domestic natural gas and oil production. Chaos in global supply chains and elevated commodity prices still weighed heavily on U.S. industrial output in March, showed data from the Institute of Supply Management.

Timothy R. Fiore, ISM Chair of the Manufacturing Business Survey Committee, said the increase in manufacturing costs in March was "due primarily to instability in global energy markets."

On the session, NYMEX May West Texas Intermediate futures advanced $4.01 to settle at $103.28 bbl, and the ICE June Brent contract gained $3.14 to $107.53 bbl. NYMEX May ULSD futures rallied 12.21 cents to $3.5461 gallon, and the May RBOB contract jumped 4.46 cents to a $3.1981 gallon settlement.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges