Oil prices ease as EU members struggle to agree on Russia's oil ban

Oil prices exhibited high volatility last week, dropping sharply at the beginning of the week, but rallying towards the end of the week. On Monday, WTI climbed above $113 per barrel, on expectations of increased demand in China. On Tuesday, the WTI price dropped almost to the $113 per barrel level. If the WTI price drops, support can be found at the $94.5 per barrel level and further down at the $90 per barrel level, while further resistance can be found near $118.3 per barrel. 

Stalling global economic growth and lockdowns in China have reduced demand. China is the largest importer of crude oil and continuing Covid lockdowns have dampened oil demand, pushing prices down. As Covid cases are starting to fall in China, however, fears of prolonged lockdown ease, drive oil prices back up. 

On Monday, news of reduced Covid cases in Shanghai fuelled optimism that the large financial centre would soon reopen. Health authorities in China have signalled that lockdown restrictions in Shanghai will start easing from May 21st and will end on June 1st. Even though many other cities in China are under strict lockdown, news of the end of the lockdown in Shanghai brought oil prices up. The end of pandemic restrictions in China would increase oil demand once more, driving oil prices further up.

The crisis between Russia and Ukraine has been intensifying concerns of disruptions in oil distribution, supporting oil prices. The EU has drafted a new package of Russian sanctions, including a ban on Russian oil crude imports. Even though the ban, if implemented, will likely throw the Eurozone into an energy crisis, it will likely not take effect for some time. The EU is hesitant to cut off Russian oil imports abruptly, as most EU member states are in favour of gradually weaning off Russian oil imports. If approved, the EU ban will likely result in phasing out Russian oil imports over the next six months to a year. EU’s Russian oil sanctions have stalled though, as some EU member states, such as Hungary, oppose the ban and are vetoing the plan. 

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Written by:
Myrsini Giannouli

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