OIL FUTURES: Crude extends rally as market eyes EU sanctions on Russian energy

Crude futures extended their rally in midday US trading March 21 as the possibility of EU sanctions on Russian oil raised supply concerns.

At 1550 GMT, NYMEX April WTI was up $5.17 at $109.87/b and ICE May Brent was $6.43 higher at $114.36/b.

The foreign ministers of Lithuania and Ireland said March 21 that it was time for the EU to start looking at sanctions on Russian oil, according to a Reuters report. Current EU sanctions packages have refrained from targeting the energy sector.

"Looking at the extent of the destruction in Ukraine right now, it's very hard to make the case that we shouldn't be moving in on the energy sector, particularly oil and coal," said Irish Foreign Minister Simon Coveney, according to a report from the news agency.

"[The market] is starting to see this growing belief that eventually the EU is going to be put in a position where they will have to ban Russian energy supplies," OANADA senior market analyst Ed Moya said, adding that "this drastic measure will really hurt the Russian economy, and you will see this market subject to some potentially severe disruptions in the near future."

NYMEX April RBOB traded 13.35 cents higher at $3.3723/gal and April ULSD was up 23.23 cents at $2.8304/gal.

The US has already imposed a ban on Russian oil imports, and further sanctions against Moscow are expected to be announced later this week.

A drone attack perpetrated by Yemeni Iran-aligned Houthi rebels on the Yasref oil facilities in Saudi Arabia over the weekend added to supply risks.

According to media reports, the attack had resulted in a temporary decrease in output at the refinery, but there were no casualties.

"The assault on Yasref facilities has led to a temporary reduction in the refinery's production, which will be compensated for from the inventory," the company said. Yanbu Aramco Sinopec Refining Company is a joint venture between Saudi Aramco and China Petrochemical Corporation.

Falling COVID-19 cases in China have eased investor fears of infections spiraling out of control in the world's second largest economy. The country's National Health Commission reported 1,656 locally transmitted cases March 19, down from 2,157 the previous day.

"Falling new cases underscored the country's prompt and stringent measures, including lockdowns and mass tests, in containing the rapid spread of the virus. This may help boost investor confidence amid the country's most severe viral outbreak since 2020," said IG DailyFX strategist Margaret Yang in a March 21 note.

Chinese authorities had imposed restrictions across nearly 20 provinces and municipalities in recent weeks in a bid to contain the outbreak.

The areas of Guangdong, Shandong, Jilin and Shanghai, which are among the epicenters of the COVID-19 outbreak this time, accounted for around 30% of China's oil consumption in 2021, data from S&P Global Commodity Insights showed.

The lockdowns had prompted concerns of demand destruction that weighed on crude prices during the week ended March 18.