By Barani Krishnan
Investing.com -- The outcome oil bulls had waited weeks for finally seems to be here — a Germany reportedly ready to ban Russian oil — handing the market back to the longs, just ahead of the next OPEC+ meeting where more jawboning could push prices higher.
After the recent uncertainty from China’s Covid problems and related lockdowns, crude got a full green signal on Thursday from a Wall Street Journal report that Berlin was no longer opposed to an embargo on Russian oil — a dynamic that could further tighten supplies in the already-stressed global energy market.
Reuters reported that the WSJ article also echoed comments from Germany's Economy Minister Robert Habeck on Tuesday, when he said the EU's largest economy could cope with an EU embargo on Russian oil imports and that it was hoping to find ways to replace Russian oil with other supplies.
Crude prices, treading in negative waters prior to the WSJ report, shot up more than $2 a barrel as the story went beyond Germany, with traders questioning how some European countries that virtually got every drop of oil from Russia would survive the ban. Germany itself imported 35% of its oil from Russia before the Ukraine invasion and the sanctions that followed against Moscow.
By 1:13 PM ET (17:13 GMT), Brent crude, the London-traded global benchmark for oil, was up $1.72, or 1.6%, to $106.67 a barrel.
West Texas Intermediate, or WTI, the New York-traded benchmark for U.S. crude, rose $1.72, or 1.6%, to $106.67 per barrel.
With OPEC+ due to meet in a week, the market could be on an extended recovery from this week’s lows of beneath $100.
OPEC+, led by the 13-member Saudi-controlled Organization of the Petroleum Exporting Countries and 10 other oil producers steered by Russia, has pushed prices up each time it met over the past year by offering a meager 400,000 barrels per day hike in monthly production — and then not even fulfilling that.
Beyond next week’s OPEC+ meeting, prices could again be under pressure, some analysts said.
“The same factors remain at play here and could be the catalyst for an eventual breakout, be it further Chinese lockdowns, slow output growth from OPEC+, new supply disruptions, larger reserve releases etc,” said Craig Erlam, analyst at online trading platform OANDA.
“Ultimately, we're continuing to see consolidation in crude markets, with the range tightening and potentially setting us up for a volatile breakout in the coming weeks.”
“As a result of this, oil from the free world is going to be more expensive, and Iron Curtain oil will plunge further in value and be discounted more heavily," John Kilduff, partner at Again Capital in New York, said, using a Soviet-era reference for Russian oil.
Adam Button, analyst on the ForexLive platform, said politics could further complicate the situation for some European states. For instance, he said there were plans to supply a refinery in Gdansk with non-Russian oil but he noted that the refinery in question was owned by Russia’s Rosneft.
"What's (also) not addressed here is the many other countries in eastern Europe that rely on Russian oil -- some of them 100%,” Button said.