Oil Increases 1.5% And Achieves Another Weekly Increase Due to Supply Worries

Oil prices surged over 1.5 percent on Friday, registering a second consecutive weekly increase, as expected European Union sanctions on Russian oil increased the likelihood of a tighter supply and traders shrugged off concerns regarding global economic growth.

Brent futures increased by $1.49, or 1.3%, to $112.39 per barrel. The price per barrel of U.S. West Texas Intermediate (WTI) crude increased by $1.51, or 1.4%, to $109.77.

Phil Flynn, an analyst with Price Futures Group, stated, "In the short term, the fundamentals for oil remain optimistic, and the only factor holding us back is the worry of a future economic slowdown."

WTI rose around 5 percent for the week, while Brent rose nearly 4 percent, after the EU imposed an embargo on Russian oil as part of its toughest-to-date package of sanctions in response to the situation in Ukraine.

Three EU sources told Reuters that the EU is modifying its sanctions strategy in an effort to win over recalcitrant governments and gain the necessary unanimity from the 27 member states. The initial proposal called for a stop to EU crude and oil product imports from Russia by the end of this year.

"The impending EU oil embargo against Russia has the makings of a severe supply crunch. In any event, OPEC+ is unwilling to assist, despite the fact that rising oil costs are causing inflation to rise to dangerous levels "Stephen Brennock, a PVM analyst, commented.

The Organization of the Petroleum Exporting Countries, Russia, and allied producers (OPEC+) held to its decision to increase its June output target by 432,000 barrels per day despite appeals from Western nations to increase output more.

However, economists anticipate a far smaller increase in real production due to capacity restrictions.

According to Jeffrey Halley, senior market analyst for the Asia-Pacific region at OANDA, "there is no possibility that certain countries would meet their quotas due to production difficulties affecting Nigeria and other African members."

A panel of the U.S. Senate adopted on Thursday a bill that could expose OPEC+ to lawsuits for colluding in raising oil prices.

On the supply side, the number of oil rigs in the United States increased by five to 557 this week, the highest level since April 2020. []RIG/U]

The U.S. Commodity Futures Trading Commission (CFTC) reported that hedge funds reduced their net long crude futures and options holdings in the week ending May 3.

As a result of the U.S. government's plan to purchase 60 million barrels of crude oil to replace emergency stocks, investors anticipate a rise in demand from the U.S. this autumn. However, indicators of a faltering global economy fueled demand concerns, so restraining oil price increases.

The Bank of England issued a warning on Thursday that Britain faces the double whammy of a recession and inflation above 10 percent. It increased interest rates by a quarter-point to 1 percent, the highest level since 2009.

China's strict COVID-19 restrictions are generating headwinds for the second-biggest economy and largest oil importer in the world.

The largest district of Beijing, Chaoyang, which is home to embassies and massive offices, will be devoid of any non-essential services.