Oil Fluctuates With Traders Centered on Russia and China Risks

(Bloomberg) -- Oil swung between gains and losses after Russia cut natural gas supplies to Poland and Bulgaria, escalating Europe’s energy crisis. 

West Texas Intermediate traded near $101 a barrel on Wednesday. Russia halted gas flows to two European countries, making good on a threat to stop supplying any buyers that refuse President Vladimir Putin’s demand to pay for the fuel in rubles.  Germany said its prepared to support a European Union on a gradual ban on Russian oil.

Meanwhile, U.S. crude stockpiles rose 619,000 barrels last week, according to an Energy Information Administration report Wednesday. Diesel and gasoline inventories fell, with gasoline stocks in New England falling to their lowest since 1991.

On the demand side, traders are assessing risks from the latest wave of Covid-19 in China, while a strengthening dollar reduced the appeal of commodities priced in the currency.

“The dollar is most certainly playing a part,” said Ole Sloth Hansen, head of commodities strategy at Saxo Bank A/S. “Gas in Europe has given back most of its early gains, thereby reducing the geopolitical bid from overnight.”

European Union countries have been rushing to reduce their dependence on Russian energy following Putin’s invasion of Ukraine. Officials from the bloc have been in talks over possible steps to curb oil imports from the country, with Germany saying Tuesday that a full embargo would be manageable. The U.S. and U.K. have already pledged to ban imports from the OPEC+ producer.

The renewed geopolitical risk comes just as the tightest corner of the oil market flares up again. U.S. diesel futures settled at a fresh record Tuesday, while profits from making the fuel in Europe are the highest since at least 2011. Russia is Europe’s largest external supplier of the middle distillate.

In Asia, some positive signs emerged from virus-hit China, with Shanghai hinting at an easing of lockdown measures and case numbers in Beijing stabilizing. President Xi Jinping also made a commitment to boost infrastructure construction to bolster the economy.

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