WASHINGTON (DTN) -- Nearby-month delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange advanced more than 4% early Wednesday in reaction to breaking news indicating the European Union agreed on a phased-out embargo of Russian oil imports that would grant a transition period of six months for most member-states and until the end of the year for purchases of refined fuels in a move that risks further tightening the global oil supply-demand balance in the second half of 2022.
Albeit some EU member-states were granted an extended period to stop purchases of Russian oil, the proposed legislature would in fact mean that all Russian oil imports, seaborne or pipeline, crude and refined, would be phased out of the European energy mix.
"We will make sure that we phase out Russian oil in an orderly fashion, in a way that allows us and our partners to secure alternative supply routes and minimizes the impact on global markets," said European Commission President Ursula von der Leyen in remarks to the European Parliament.
Hungary and Slovakia, two member-states that voiced their opposition to the embargo, were allowed to continue purchases of Russian oil under existing contracts until the end of 2023.
"We see no plan or guarantees in the current proposal to manage even a transition period nor what would guarantee Hungary's energy security," said Zoltan Kovacs, a spokesman for the Hungarian government.
Acknowledging the risks, German Economy Minister Robert Habeck said he cannot guarantee regional supplies will not be disrupted but believes the EU transitional period is adequate. He added the share of Russian crude in German imports has already fallen to about 12% from more than a third before the beginning of the Russian invasion on Feb. 24.
The move dramatically raises stakes with Moscow as the EU -- the single largest consumer of crude and fuel from Russia -- seeks to pressure Russian President Vladimir Putin to stop his aggression against Ukraine. In 2019, almost two-thirds of the bloc's crude oil imports came from Russia.
Terminating oil flows is seen as more manageable than disrupting natural gas because alternative sources of crude are easier to find on the global market. Most gas flows through pipelines, while seaborne deliveries of liquified natural gas from other countries would not cover the shortfall.
Separately, the American Petroleum Institute reported late Tuesday a much larger-than-expected drawdown from U.S. commercial crude and product inventories for the final week of April underpinned by strengthening fuel demand. DTN Refined Fuels Demand data revealed gasoline demand in the United States increased 2.8% in the reviewed week, while demand for diesel gained 4.3%, with PADD 5 West Coast and PADD 2 Midwest leading the increase in the pull on supply.
API data showed commercial crude oil stocks plunged 3.479 million barrels (bbl), far more than the estimated decline of 200,000 bbl. Inventories at the NYMEX delivery point in Cushing, Oklahoma, added 978,000 bbl. Gasoline stockpiles tumbled 4.5 million bbl in the week ended April 29, far surpassing calls for a draw of 300,000 bbl. Distillate inventories, meanwhile, sank 4.457 million bbl, more than double pre-report estimates that stocks would drop 1.5 million bbl.
Near 7:30 a.m. EDT, NYMEX West Texas Intermediate futures for June delivery advanced more than $4 to $106.57 bbl, and the international crude benchmark July Brent contract rallied to $109.06 bbl, up $4.09. NYMEX June RBOB strengthened 11.18 cents to $3.6121 gallon, and the front-month ULSD contract spiked 11.19 cents to $4.1946 gallon.
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