(Bloomberg) -- Oil headed for its first back-to-back weekly gain since early March on signs the market is tightening as the European Union moved toward banning Russian crude and the U.S. said it would refill its strategic reserves.
West Texas Intermediate rose toward $109 a barrel, and is up 4% this week. The EU intends to phase in a ban on Russian crude by year-end to punish Moscow for its invasion of Ukraine, although the plan has drawn opposition from Hungary. Approval requires support from all 27 states.
The U.S. government said Thursday that it would begin a buyback of crude to replenish the nation’s reserve as early as this fall. President Joe Biden announced a major drawdown in the holdings earlier this year to try to combat higher gasoline prices. U.S. retail pump prices remain close to a record.
Oil has rallied more than 40% this year as the invasion of Ukraine upended commodity markets. This week’s advance -- the third in the past four -- has come despite lingering concerns that lockdowns in China to combat Covid-19 outbreaks are hurting consumption. While the Organization of Petroleum Exporting Countries and its allies did announce another modest increase in supply, there’s doubt the alliance will be able to deliver the full volume.
“The prospect of EU sanctions on Russian oil threatens to make an already-tight situation worse,” said Howie Lee, Singapore-based economist at Oversea-Chinese Banking Corp. “With OPEC+ not hitting their monthly quotas as well, the supply shortage issue appears to overshadow the demand loss from China.”
EU member nations are expected to continue debating the proposal for curbs on Russian oil and fuels on Friday, with Hungary digging in its heels. Viktor Orban, the country’s prime minister, has warned that the group risks fracturing its unified front against Moscow if it tries to push the current plan through.
Oil remains in backwardation, a bullish pattern that’s characterized by near-term prices trading above longer-dated ones. The spread between Brent’s two nearest December contracts, for this year and in 2023, widened to above $13 a barrel this week from about $7.50 a barrel a month ago.
Product markets have also shown signs of strength this week, especially in the U.S., where nationwide holdings of gasoline and distillates have dropped. Gasoline futures are trading near a record after a weekly gain of more than 5%.
The global market’s robust condition was reflected in comments from supermajor Shell (LON:RDSa) Plc. The company is seeing increased demand for oil products, Chief Executive Officer Ben van Beurden said on an earnings call after announcing the highest quarterly earnings on record.
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