Oil prices went up on Friday morning after the European Union (EU) agreed to an 18th package of sanctions against Russia, but the effectiveness of the sanctions is yet to be seen.
The action is targeting Russian oil trade, and closing a loophole that has so far allowed EU imports of fuels processed from Russian crude.
On Friday, the U.S. benchmark, WTI Crude rose by 1.36 per cent to $68.51 per barrel.
The international benchmark, Brent Crude was trading higher by 1.19 per cent and returned above the $70 a barrel mark, at $70.39.
The European Union lowered the price cap on Russian crude oil to $47.60 from $60 per barrel, sanctioned another 100 shadow fleet tankers, as well as traders of Russian crude oil and a major customer of the shadow fleet – a refinery in India with Rosneft as its main shareholder.
The EU is also banning the import of refined petroleum products made from Russian crude oil and coming from any third country – with the exception of Canada, Norway, Switzerland, the United Kingdom, and the United States.
This is the EU’s attempt to prevent Russia’s crude oil from reaching the EU market through the back door.
It is this provision in the sanctions package that’s likely to have the biggest impact on the markets in the near term, analysts say.
Low fuel inventories the Amsterdam-Rotterdam-Antwerp (ARA) hub and the ban on imports of fuels made from Russian oil raised the gasoil futures in Europe, which has been importing an estimated nearly 500,000 barrels per day (bpd) of fuels from India and Turkey—two of the few, but major, buyers of Russian crude.
President Trump on Monday gave Russia a 50-day deadline to work on a peace deal in Ukraine.
Otherwise, Moscow faces new sanctions on its oil exports.
Traders, however, appear to be little convinced that there will be U.S. sanctions soon to reduce global oil supply.
They are also unconvinced that Europe’s lowered price cap and the blacklisting of another 100 ‘shadow fleet’ tankers could be easily enforced, especially without the support of the U.S.
However, the tight fuel market, the diesel market in particular, is signaling a strong start to peak demand season, lifting oil prices.
Near-term fundamentals appear supportive, with OPEC+ adding fewer barrels than the headline figures suggest and demand holding up during the peak summer travel season.