Oil Climbs on Report Germany Drops Opposition to Russia Embargo

(Bloomberg) -- Oil gained on Thursday following a report that Germany has dropped its opposition to a European Union ban on crude imports from Russia.  

Germany is now ready to stop buying Russian oil, clearing the way for a EU ban on Russian imports, the Wall Street Journal reported, citing government officials. Prices had been swinging between gains and losses as strength in the U.S. dollar weighed on futures, with traders assessing the prospect of lower supply from Russia and curbed consumption in China. 

West Texas Intermediate has struggled for direction this week, and continued its volatile trading on Thursday. The Bloomberg Dollar Spot Index gained 0.9% to reach its highest level since May 2020, making commodities priced in the currency less attractive. The greenback pared some gains after the U.S. economy unexpectedly shrank in the first quarter.

Hangzhou is the latest Chinese city to start mass virus testing, while the nation’s top state-run oil processor said during an earnings call that the resurgence was slowing fuel demand. Traders are also grappling with just how big the hit to Russian production will be as the country’s invasion of Ukraine continues. 

While demand in China is weaker, prices for refined products are surging. U.S. diesel futures extended their rally to a fresh record, pointing to a tight underlying market for petroleum products, while the middle distillate product’s fundamentals in Europe remain robust. The gap between the first and second month U.S. heating oil futures has also climbed to a record at nearly 85 cents a gallon ahead of the May contract’s expiry on Friday.

Chart of the Hour: U.S. diesel futures extend record rally amid tight supply  

It’s not just diesel markets that have been strong recently. On Wednesday, profits for turning crude into gasoline in the U.S. were at the highest since 2013. That followed data signaling that inventories of the fuel had fallen for a fourth week. 

While crude supply is keenly focused on Russian flows, replacement barrels from the North Sea are set to dwindle in the coming months. Loadings of the grades that make up the Dated Brent benchmark will fall to the lowest level since at least 2007 in June, while shipments from the Johan Sverdrup will hit a 21-month low amid a raft of planned maintenance.

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