By Peter Nurse
Investing.com -- Oil prices traded higher Friday, on course for a second straight positive week, on the prospect of tighter global supply as the European Union lines up an embargo of Russian crude.
By 9:15 AM ET (1315 GMT), U.S. crude futures traded 0.8% higher at $109.08 a barrel, while the Brent contract rose 1% to $112.03 a barrel.
U.S. Gasoline RBOB Futures were up 0.8% at $3.6896 a gallon.
The EU proposal suggests an embargo on imported crude from Russia in six months as well as a phasing out of imports of refined products by the end of 2022.
Such a deal would require unanimous approval from all 27 countries, and that is unlikely with a handful of EU members against an embargo.
That said, Bloomberg reported the European Union is willing to offer compromises to some central European member states in order to get unanimity, allowing Hungary and Slovakia to continue importing Russian crude and refined products until the end of 2024, while Czechia would be allowed to do the same until June 2024.
These landlocked eastern European states are more dependent than the rest of the EU bloc on Russian oil due to the network of pipelines established during the Cold War.
The Organisation of the Petroleum Exporting Countries and allies such as Russia, a group known as OPEC+, did little to alleviate fears that global supply would be affected by the EU move, announcing another modest monthly increase of 432,000 barrels per day in its production target for June.
Even this increase is unlikely to be fully implemented, with countries like Nigeria and Angola struggling to increase output in the wake of investment cuts after oil prices collapsed in 2015-2016.
“The group is struggling to hit output quotas due to disruptions and a lack of investment in fields,” said analysts at ING, in a note. “Lagging production is unlikely to change anytime soon, particularly given the weaker demand for Russian oil, which will eventually lead to output decreasing.”
Adding to the positive sentiment were comments from authorities in Shanghai, suggesting that China’s worst outbreak of COVID-19 has been brought under effective control following a month-long lockdown.
Millions have been under strict lockdown in the country’s financial hub, weighing heavily on demand for crude by the world’s largest importer.
Investors are also eyeing higher demand from the United States this fall as the U.S. Department of Energy unveiled plans to buy 60 million barrels of crude for its emergency stockpiles.
“The DOE has also made it clear that this would be the first tranche and that there would be more to follow,” ING added. “The U.S. administration believes that announcing this refilling plan will help encourage production as it will guarantee demand for crude oil in the years ahead.”
The Baker Hughes rig count and the CFTC’s positioning data round off the week later, as usual.