Oil Prices Climb As The EU Bans Most Russian Oil Imports

Oil prices increased on Tuesday as the European Union (EU) agreed to reduce its oil imports from Russia by the end of 2022, fueling fears of a tightening market already stressed for supply due to rising demand ahead of the peak summer driving season in the United States and Europe.

At 00:54 GMT, Brent crude futures for July, whose contract expires on Tuesday, rose 33 cents to $122.50 a barrel. The more popular August contract increased 33 cents to $117.93.

Futures contracts for U.S. West Texas Intermediate (WTI) crude were trading at $117.31 a barrel, an increase of $2.24 from Friday's closing. Due to a U.S. holiday, there was no settlement on Monday.

European Union leaders agreed in principle to reduce oil imports from Russia by 90 percent by the end of 2022, breaking a stalemate with Hungary over the bloc's heaviest sanction against Moscow since the invasion of Ukraine three months ago.

Due to the fact that the market has already factored in the supply limits, according to some analysts, oil price improvements may be modest.

SPI Asset Management Managing Partner Stephen Innes told Reuters that the market had "already factored in EU self-sanction and much less Russian oil moving to Europe this year"

Innes continued, "I believe the market is pricing in some more Asia demand via China; nevertheless, the glaring issues are the soaring gasoline prices at the pump, which could lead to some demand destruction over the driving season."

Following the removal of COVID-19 restrictions, China's demand is anticipated to increase. Shanghai has announced the end of its two-month lockdown and will permit the vast majority of residents in China's largest metropolis to leave their homes and drive cars beginning Wednesday.

On the production side, OPEC+ is expected to adhere to its agreement from last year at its meeting on Thursday, with a moderate July output rise of 432,000 barrels per day, according to six sources from OPEC+. This is in response to Western calls for a more rapid increase to curb skyrocketing prices.

The Organization of the Petroleum Exporting Countries and its allies, led by Russia, argue that the oil market is in equilibrium and that recent price increases are unrelated to underlying fundamentals.

In 2022, oil prices on both sides of the Atlantic reached their highest level in more than a decade and are up more than 55 percent so far in 2022.