LONDON—The European Union proposed a phased oil embargo on Russia, sending oil prices soaring, reports Reuters. The EU’s plans include a six-month embargo on crude oil.
Brent crude was up 36 cents, or 0.3%, at $110.50 a barrel by 10:07 GMT. U.S. West Texas Intermediate crude rose four cents, or less than 0.1%, to $107.85. Both benchmarks gained more than $5 a barrel yesterday.
Meanwhile, Reuters reports that OPEC+ is likely to agree to another modest oil output, as the oil producer group meets today. OPEC+ argues that it’s not responsible for geopolitics and supply disruptions and says it is concerned over the demand outlook after new COVID-19 lockdowns in China.
The group is set to allow another monthly increase of 432,000 barrels per day in its production target for June, according to Reuters.
The surge in oil prices has been a boon to the Iranian economy and “hence its clerical rulers are in no rush to revive a 2015 nuclear pact with world powers to ease sanctions,” writes Reuters.
The proposed EU sanctions on Russian oil will need to be backed by all 27 EU member countries. The phased approach has imports of Russian refined products stopped by the end of this year, and it also includes a ban on all shipping and insurance services for the transportation of Russian oil. However, Hungary and Slovakia will be able to continue buying Russian crude oil until the end of 2023 under existing contracts, an EU source told Reuters.
"The planned EU oil embargo represents a massive logistical challenge for oil markets," Callum Macpherson, Investec’s head of commodities, told Reuters. "Re-routing Russian output from Europe to willing buyers in Asia, in the presence of sanctions, is already so challenging that even Russia has admitted its production will decline significantly."
Europe imports around 3.5 million barrels of Russian oil and oil products every day, and it also depends on Moscow's gas supplies.
"Inventories are so tight, so against this backdrop, when you're talking about this ban, there are a lot of questions on how [Europe] is going to make up for this," Phil Flynn, senior analyst at Price Futures Group, told Reuters.
Japan said that it would have a hard time following the EU’s embargo right away if it were to be passed, according to Koichi Hagiuda, Japan’s minister of economy, trade and industry.
"Given Japan has its limit on resources, we would face some difficulty to keep in step immediately" with other countries, Hagiuda told reporters during a visit to Washington. In a meeting with U.S Energy Secretary Jennifer Granholm, Hagiuda said that if the U.S. could increase its liquefied natural gas output, that would help Japan decrease its use of Russian energy.
Russia oil imports accounted for 4% of Japan's overall oil imports for the last fiscal year to March. Natural gas from Moscow made up 9% of Tokyo's imports and Russia coal imports accounted for 11%.
Meanwhile, U.S. diesel prices set a new record today at $5.473 a gallon, according to AAA. That’s up from $5.123 just a week ago and $5.083 a month ago. The national average price of gasoline stood at $4.247 a gallon this morning, up from $4.176 a month ago and $2.92 a year ago.
NACS’ most recent blog post, “Is Gas Tax Relief a Good Idea?” discusses how easing consumer pain at the pump is a good idea, unless it causes more problems.
The Convenience Matters podcast episode “What’s the Tipping Point for Gas Prices?” explores how much pain at the pump that consumers will tolerate and what’s ahead for the summer driving season.
Here’s how to explain to customers why gas prices aren’t dropping quicker when the price of crude oil does drop.