Oil Prices Soar on Word That Germany Relaxes Objection to Russian Oil Embargo

Traders were reacting to media reports that Germany's Economy Minister Robert Habeck stated Tuesday that the EU's largest economy could survive an EU embargo on Russian oil imports and that Germany hoped to find alternative sources of supplies.

By 1:38 p.m. EDT, Brent crude futures had risen $1.89 to $107.21 a barrel (1838 GMT). West Texas Intermediate crude in the United States increased $2.61, or 2.6 percent, to $104.63.

Germany is significantly reliant on Russian energy supplies and had previously resisted a complete embargo.

Prior to the Ukraine war, Russia supplied nearly a third of Germany's oil. Habeck announced a month ago that the government had reduced its reliance on Russian oil to 25% of imports.

"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," said John Kilduff, a partner at Again Capital LLC in New York.

Moscow has begun to use energy exports as a stick in reaction to the US and its allies' response to Russia's invasion of Ukraine.

Russia has cut off gas supplies to Poland and Bulgaria and is attempting to convince the EU to adopt its new gas payment system, which entails creating accounts with Gazprombank and converting payments in euros or dollars to roubles.

Russian oil production could decrease by as much as 17% in 2022, according to a document seen by Reuters from the economy ministry, as the country deals with Western sanctions.

Despite this anticipated shortage, sources told Reuters that the OPEC+ group of producers, which includes the Organization of the Petroleum Exporting Countries and allies led by Russia, is set to maintain its modest pace of output growth when it meets on May 5.

The US dollar climbed to its highest level in two decades on Thursday, aided by weakening in the currency's biggest rivals, including the yen and euro. A higher dollar is typically detrimental to oil prices that are denominated in the greenback, as it increases the cost of the commodity to holders of other currencies.

Beijing shuttered certain public venues and increased COVID-19 checks in others as the majority of the city's 22 million citizens conducted additional mass testing in an attempt to avert a Shanghai-style shutdown. The latest shutdown has caused disruptions to industry and supply systems, heightening concerns about the country's economic progress.

Sinopec (NYSE:SHI) Corp, Asia's largest oil refiner, expects demand for refined oil products to recover in the second quarter as COVID-19 outbreaks are gradually brought under control.

Global economy slowing as a result of increasing commodity prices and an escalation in the Russia-Ukraine war might exacerbate fears about oil demand.