Oil rose $2 a barrel on Monday on the prospect of even tighter supplies loomed over the market as the Group of Seven nations promised to tighten the squeeze on Russian President Vladimir Putin’s war chest while actually lowering energy prices.
Brent crude futures settled $1.97, or 1.7% higher, at $115.09 a barrel, while U.S. West Texas Intermediate crude closed up $1.95, or 1.8%, at $109.57 a barrel.
The group of wealthy nations vowed to stand with Ukraine “for as long as it takes”, proposing to cap the price of Russian oil as part of new sanctions to hit Moscow’s finances.
“I think if they were to implement a price cap on sale and purchase of Russian oil, it’s difficult for me to imagine how this is going to be implemented, especially when China and India have become Russia’s biggest customers,” said Houston-based oil consultant Andrew Lipow.
Commonwealth Bank of Australia analyst Vivek Dhar noted that there was “nothing stopping Russia from banning oil and refined product exports to G7 economies in response to a price cap, exacerbating shortage conditions in global oil and refined product markets.”
The international community should explore all options to alleviate tight energy supplies, including talks with producing nations like Iran and Venezuela, a French presidency official said. Both OPEC members’ oil exports have been curbed by U.S. sanctions.
Both crude benchmarks closed down for the second week in a row on Friday as interest rate hikes in key economies strengthened the dollar and fanned fears of a global recession.
Recession fears and expectations of more interest rate hikes have caused volatility and risk aversion in the futures markets, with some energy investors and traders paring back, while spot crude prices have remained strong on high demand and a supply crunch.
For now, pressing supply worries outweighed growth concerns.
Members of the Organization of the Petroleum Exporting Countries and their allies including Russia, known as OPEC+, will probably stick to a plan for accelerated oil output increases in August when they meet on Thursday, sources said.
The producer group also trimmed its projected 2022 oil market surplus to 1 million barrels per day (bpd), down from 1.4 million bpd previously, a report seen by Reuters showed.
OPEC member Libya said on Monday it might have to halt exports in the Gulf of Sirte area within 72 hours amid unrest that has restricted production.
Adding to the supply woes, Ecuador also said it could suspend oil production completely within 48 hours amid anti-government protests in which at least six people have died.
Traders also waited for news on when market-moving U.S. government oil inventory and other data would be published after it was not released last week due to server issues.
U.S. crude oil, distillate and gasoline inventories likely fell last week, a preliminary Reuters poll showed on Monday.