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An oil refinery is seen in this file photograph. Picture: REUTERS
An oil refinery is seen in this file photograph. Picture: REUTERS

London — Oil prices firmed on Wednesday after EU leaders agreed to a partial and phased ban on Russian oil and as China ended its Covid-19 lockdown in Shanghai.

Brent crude was up $1.71, or 1.5%, at $117.31 a barrel by 8.17am GMT. US West Texas Intermediate (WTI) crude rose $1.67, or 1.5%, to $116.34.

Both benchmarks registered gains over May, marking the sixth straight month of rising prices.

“The mood on the oil market is seemingly turning ever more bullish,” said Julius Baer analyst Norbert Rucker. “Europe’s embargo and China's partial reopening is fuelling supply fears and lifting oil prices.”

EU leaders agreed in principle on Monday to cut 90% of oil imports from Russia by the end of 2022, the bloc's toughest sanctions yet since the start of the invasion of Ukraine, which Moscow calls a “special military operation”.

Once fully adopted, sanctions on crude will be phased in over six months and on refined products over eight months. The embargo exempts pipeline oil from Russia as a concession to Hungary and two other landlocked Central European states.

In China, Shanghai’s strict Covid-19 lockdown ended on Wednesday after two months, prompting expectations of firmer fuel demand from the country.

Capping gains were reports that some producers were exploring the idea of suspending Russia's participation in an Opec+ production deal on expectations such a move would increase supply.

Opec+ comprises members of oil cartel Opec and their allies.

“The full reopening of Shanghai from Covid-19 restrictions may boost sentiment at the periphery, but the possible exemption of Russia by Opec, from the output agreement, is the bigger story,” said Jeffrey Halley, senior market analyst at Oanda.

While there was no formal push for Opec countries to pump more oil to offset any potential Russian shortfall, some Gulf members had begun planning an output increase sometime in the next few months, the Wall Street Journal reported, citing Opec delegates.

US crude oil production rose in March by more than 3% to its highest since November, a US Energy Information Administration report showed on Tuesday.

Analysts polled by Reuters expected US crude oil inventories to have fallen last week while petrol and distillate stockpiles were expected to have increased. Official government data is expected on Thursday. 

Reuters

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