Oil jumps 3% as EU plans ban on Russian oil

Oil rose as the European Union proposed to ban Russian crude oil over the next six months and refined products by the end of the year.

Brent futures climbed as much as 2.6% to trade near $108 a barrel in London, extending an earlier gain. While the EU ban has been signaled for much of the last week, traders have been keenly focused on just how much the war will impact output from Russia, one of the world’s largest producers.

“This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined,” European Commission President Ursula von der Leyen said. “We will make sure that we phase out Russian oil in an orderly fashion, in a way that allows us and our partners to secure alternative supply routes and minimizes the impact on global markets.”

Europe is highly dependent on Russian crude oil, and some countries will find it easier to switch supply than others. Russia shipped about 720,000 barrels a day of crude to European refineries through its main pipeline to the region last year. That compares with seaborne volumes of 1.57 million barrels a day from its Baltic, Black Sea and Arctic ports.

Hungary and Slovakia, which had been opposed to a swift cutoff of Russian oil and are highly dependent on its supply, will be granted a longer time frame — until the end of 2023 — to enforce the sanctions, according to people familiar with the matter.

Oil has been buffeted by volatility this year, while posting monthly gains, as Russia’s invasion of Ukraine rocks markets and investors prepare for central banks to tighten policy to contain inflation. The U.S. Federal Reserve is expected to raise interest rates by 50 basis points later on Wednesday, and policy makers may signal even more aggressive hikes later this year.

The phase out of Russian oil in Europe will come at a time when the world is grappling with a refined product crisis — potentially making it all the more costly for the region to wean itself off Russian fuels like diesel. The American Petroleum Institute reported a drop of about 4.5 million barrels each in U.S. gasoline and distillate holdings, according to people familiar with the figures, the latest sign of tightness in fuel markets.

The U.S. diesel crack spread — a gauge of the profitability of turning crude into diesel — has surged this year as countries cut back on Russian fuel, depleting supplies.

Oil investors are also counting down to a meeting on Thursday of the Organization of Petroleum Exporting Countries and its allies on production policy. The 23-nation group is expected to ratify another modest supply increase amid signs that the alliance is failing to deliver agreed-upon volumes.