Oil prices increased on Wednesday over an estimated drop in US crude inventories, signaling a rise in demand while talks of a fresh oil embargo on Russia fueled supply worries.
International benchmark Brent crude was trading at $116.12 per barrel at 0704 GMT for a 0.55% increase after closing the previous session at $115.48 a barrel.
American benchmark West Texas Intermediate (WTI) was at $109.64 per barrel at the same time for a 0.34% gain after the previous closed at $109.27 a barrel.
Higher prices were sustained by fears of the EU imposing a ban on Russia's oil exports, which would slash almost 3 million barrels of oil from the European market.
“An EU embargo would tighten the market for Urals replacement barrels such as Johan Sverdrup, Arab Light, and Basra Light,” said Rystad Energy’s Senior Oil Market Analyst Louise Dickson, adding that filling refineries with more expensive crude would likely result in a decrease in European runs.
She stressed that a full-out oil ban “would be a policy turning point for Europe, which has so far avoided any energy sanctions.”
Russia, too, threatened to turn off gas supplies to Europe in the event of an EU oil embargo, which has contributed to short-term market volatility.
In the meantime, the US is working on new sanctions on Russia.
National Security Advisor Jake Sullivan said that President Joe Biden “will announce the new economic penalties as part of a coordinated action with US partners and will further tighten existing sanctions to crack down on 'evasion, and to ensure robust enforcement.'
Biden is due to participate in a series of meetings in Brussels beginning March 24, including a NATO summit and European Council meeting, to discuss ongoing western concerns on Russia's war in Ukraine.
“If the EU fully shunned oil originating from Russian ports and pipelines, it would put a more than 2 million dent in the market, which would keep prices elevated near $120 per barrel in the short term,” Dickson said.
However, not all EU countries are eager to bring sanctions on Russia’s oil and gas sector, as Germany on Tuesday reiterated its opposition to energy sanctions on Russia, warning that it could have negative consequences for European economies.
German Chancellor Olaf Scholz said European countries should carefully assess the proposed measures.
“Sanctions should have an effect on the aggressor, but at the same time, we should make sure that they have minimal repercussions for our economies, and we should be able to uphold them,” he said.
Scholz underlined that not only Germany but also many other EU countries still need to buy their gas, oil and coal from Russia, as they have no other alternatives in the short term.
-Iran nuclear deal in limbo
Among the alternative sources of supply are barrels from Iran. However, talks in Geneva to revive the 2015 nuclear deal are as yet inconclusive amid several uncertainties.
The US said Tuesday that it is unclear whether Iran will ever agree to a nuclear deal, but if it is willing to make “difficult decisions,” one could be reached “very soon.”
Taking the wind out of rising oil prices, the American Petroleum Institute (API) announced late Tuesday its estimate of a fall of 4.3 million barrels in US crude oil inventories, compared to the market expectation of a rise of 250,000 barrels.
By Sibel Morrow
Anadolu Agency
energy@aa.com.tr