- Oil rose despite strength in the US dollar as Western leaders considered sanctions on Russian energy.
- The EU decided against banning imports of Russian oil on Tuesday as the bloc weighs up alternatives.
- In China, lockdowns in major cities is curbing travel demand and, therefore, oil consumption.
Oil prices rose on Wednesday, shrugging off the dollar hitting two-year highs and lower demand in China thanks to COVID-related lockdowns, while Western leaders imposed sanctions on Russian coal imports but stopped short of banning crude oil or gas.
Brent crude futures rose 1.5% to trade at $108.22 a barrel on Wednesday, while West Texas Intermediate gained 1.7% to trade at about $103.66 a barrel.
"The extent of the new Russian sanctions to be announced by Europe and the US today will have a more immediate impact on short-term direction. It is my base case that Europe will leave Russian oil alone for now, although if they surprise and target this sector, prices should move sharply higher," Jeffrey Halley, senior market analyst at Oanda said in a daily note.
EU Commission President, Ursula Von Der Leyen announced a fifth package of restrictions that includes the EU's first sanctions on Russian fossil fuels, with a ban on coal imports worth over $4 billion a year, but stopped short of imposing any restrictions on oil imports.
Futures for coal deliverable in Europe rose 4.5% to a two-week high above $300 a ton.
"We must increase pressure on Putin and the Russian government again. So we propose to tighten our sanctions even further. They limit the Kremlin´s political and economic options. They affect Russia much harder than us. And they will not be our last sanctions," von der Leyen said on Wednesday.
—Ursula von der Leyen (@vonderleyen) April 6, 2022
While the EU promised more sanctions are pending, the prospect of an outright ban on Russian oil imports is unlikely given how heavily a number of member states rely on Russian supply of crude. Banning imports of natural gas is even more distant a prospect, as Russia supplies roughly 40% of the EU's total consumption. Natural gas prices in Europe have already hit record highs as a result and are up over 400% in the last year.
"We are very much dependent on Russian gas, and I think all sanctions that hit us more than the Russians wouldn't be good for us, and that's why we're against the sanctions on oil and gas," Austria's Finance Minister, Magnus Brunner said on Monday.
Elsewhere, in China COVID restrictions continue to affect the demand for fuel as the country experienced lower than normal travel during the recent Qingming Festival. The festival took place between Sunday and Tuesday, and even before it began tourism agencies had reported reduced demand for long-haul trips due to uncertainty brought on by renewed COVID restrictions, according to local reports.
The US dollar has hit two-year highs this week, driven by a growing expectation among investors that the Federal Reserve will raise interest rates more quickly than expected to temper surging inflation. Fed Vice Chair Lael Brainard said on Tuesday inflation was "much too high" and there was a risk it could rise even further.
A stronger US currency typically tends to curb demand for commodities denominated in dollars and would normally weigh on the oil price.