Oil Swings as Biden, Allies Gather to Step Up Pressure on Moscow

(Bloomberg) -- Oil fluctuated as investors weighed threats to supplies from the month-old war in Ukraine, with President Joe Biden set to address the crisis on a key trip to Europe that may see more sanctions imposed on Russia.

Global benchmark Brent swung between gains and losses near $122 a barrel. The White House and European Union are close to a deal aimed at slashing the region’s dependence on Russian energy, although that may focus primarily on flows of natural gas. Oil rose more than 5% on Wednesday after U.S. stockpiles fell and a Black Sea export terminal halted loadings following bad weather. 

Oil has rallied more than 50% this year, hitting the highest level since 2008 earlier this month, as Russia’s invasion of Ukraine threw global commodity markets into turmoil. While the U.S. and U.K. have already moved to bar flows of Russian crude, there’s greater reluctance among EU members to follow suit given the region’s higher dependence. Trafigura Group forecast this week that crude prices are set to keep on rising, potentially hitting $150 a barrel.

In Asia meanwhile, China’s worst coronavirus outbreak since the start of the pandemic has spurred some refiners to cut back operations, with analysts rethinking demand estimates as strict lockdowns curb consumption. Among the signs, independent refiners in Shandong have been reducing processing rates.

“There are worries around both supply as well as demand, which may keep prices rather volatile,” Will Sungchil Yun, senior commodities analyst at VI Investment Corp. in Seoul, said by phone. “But if fresh sanctions are slapped on Russia, we’re looking at another leg up.”

In Brussels on Thursday, Biden will join back-to-back summits with NATO, the Group of Seven and the European Union. Then on Friday the president visits Poland, which is hosting the biggest number of displaced Ukrainians.

As the war drags on, there’s a growing willingness on both sides to use Russian energy supplies as a weapon. On Wednesday, President Vladimir Putin ordered the nation’s central bank to develop a mechanism to force European customers to pay for Russian natural gas in rubles, spurring a rally in prices.

Oil markets remain deeply backwardated, a bullish pattern marked by near-term prices trading above longer-dated ones. Brent’s prompt spread -- the difference between its two nearest contracts -- has widened to $3.95 a barrel in backwardation, up from 41 cents at the start of the year.

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