Germany Prepares For Russian Ban As Oil Becomes A Bull Market Again

After being stifled recently by the strong dollar and China's Covid problems and related lockdowns, crude received a full green light on Thursday from a Wall Street Journal report that Berlin was no longer opposed to a Russian oil embargo — a dynamic that could further constrain supplies in the already-stressed global energy market.

According to Reuters, the WSJ piece echoed statements made Tuesday by Germany's Economy Minister Robert Habeck, who said the EU's largest economy could deal with an EU embargo on Russian oil imports and was looking for alternative sources of supply.

Crude prices, which had been hovering in negative territory previous to the WSJ report, jumped more than $2 a barrel as the story expanded beyond Germany, with traders speculating on how some European countries that rely on Russia for practically all of their oil would survive the embargo. Germany imported 35% of its oil from Russia before the Ukraine invasion and the imposition of sanctions on Moscow.

Brent crude, the global oil benchmark traded in London, closed up $2.27, or 2.2 percent, at $107.59 a barrel.

WTI, or West Texas Intermediate, the New York-traded benchmark for US petroleum, settled $3.34, or 3.3 percent, higher at $105.36 per barrel.

With OPEC+ meeting in a week, the market may be on the verge of extending its rebound from this week's lows below $100.

OPEC+, led by the 13-member Organization of the Petroleum Exporting Countries and ten other oil producers led by Russia, has pushed prices higher each time it has met in the last year by offering a meager 400,000 barrels per day increase in monthly production — and then failing to deliver on that promise.

Prices could become volatile again following the OPEC+ meeting on May 5, some analysts predicted.

"The same reasons remain in play here and might act as a trigger for an eventual breakthrough, including further Chinese lockdowns, slow OPEC+ output growth, new supply interruptions, and higher reserve releases," said Craig Erlam, analyst at online trading platform OANDA.

"Ultimately, crude markets are consolidating, with the range contracting and potentially setting the stage for a violent breakout in the coming weeks."

John Kilduff, a partner at energy hedge fund Again Capital in New York, agreed.

"As a result, oil from the free world will become more expensive, while oil from the Iron Curtain will lose even more value and become more heavily discounted "Kilduff stated, referring to Russian oil in the Soviet era.

According to Adam Button, an expert with the ForexLive platform, politics could exacerbate the issue for some European countries. He was referring to allegations regarding intentions to provide non-Russian oil to a refinery in Gdansk, despite the fact that the refinery was owned by Russia's Rosneft.

"What is also not addressed here are the numerous other countries in eastern Europe that are completely reliant on Russian oil, including some that are 100 percent dependent," Button said.