Oil Prices Surge by $5 A Barrel As EU Inches Closer to Imposing A Ban on Russian Oil

Oil prices spiked Wednesday after the European Union, the world's largest trade bloc, announced intentions to phase out Russian oil imports, sparking concerns about further market tightening as those nations seek enough supply.

Following Moscow's invasion of Ukraine, crude benchmarks have steadily increased in price over the last two months. Until far, the European Union has been unwilling to completely phase out Russian oil and gas imports, and its current plans do not include a blanket ban on all EU members.

Europe imports around 3.5 million barrels of Russian oil and petroleum products per day and is also reliant on Moscow's gas supply.

"Inventories are extremely low, and against this backdrop, there are a lot of worries about how (Europe) can compensate for this restriction," said Phil Flynn, senior analyst at Price Futures Group.

Brent crude futures finished at $110.14 a barrel, up $5.17, or 4.9 percent. West Texas Intermediate crude futures finished at $107.81 a barrel, up $5.40, or 5.3 percent, from the previous day's close.

President of the European Commission Ursula von der Leyen recommended a phased oil embargo against Russia on Wednesday, as well as penalizing Russia's central bank.

Von der Leyen stated that the Commission's proposals include phasing out Russian crude oil supply within six months and refined products by the end of 2022. Additionally, she committed to mitigate the move's impact on European economy.

Hungary and Slovakia, on the other hand, will be permitted to continue purchasing Russian crude oil under current contracts until the end of 2023, an EU source told Reuters.

Russia may compensate for the loss of a major customer by exporting oil to other importers such as India and China. Neither country has ceased purchasing goods from Moscow.

Needs for significantly increased supplies are unlikely to be fulfilled at Thursday's Organization of the Petroleum Exporting Countries and allied producers conference. OPEC+ is anticipated to follow through on its plan to gradually increase monthly production.

According to the US Energy Information Administration, oil stockpiles increased marginally last week. Stocks increased by 1.2 million barrels as the US increased the amount of crude released from its strategic reserves.

Fuel stocks declined in part as a result of increased exports of products following Russia's invasion, as importers sought alternative suppliers.

The markets have largely recovered from the Federal Reserve's announcement that it would raise interest rates by a half-point in an attempt to rein in growing inflation.

"Given the market's performance prior to the announcement, I believe (the Fed's decision) was a foregone conclusion," said Gary Cunningham, director of market research at Tradition Energy.