Crude oil futures extend gains as EU mulls Russian oil sanctions

Crude oil futures rose for a fourth consecutive trading day in mid-morning Asian trade March 22 as EU ministers mulled sanctions on Russian energy and oil markets remained undersupplied amid buyer aversion to Russian oil.

At 11 am Singapore time (0300 GMT), the ICE April Brent futures contract was up $2.87/b (2.48%) from the previous close at $118.49/b, while the NYMEX April light sweet crude contract was $2.43/b (2.17%) higher at $114.55/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.

Analysts, however, said an EU-wide ban on Russian oil was unlikely. The EU relies on Russia for 40% of its gas, while more than half of Russian oil exports go to Europe, according to some estimates.

"Several EU countries believed that the European Union should impose more severe sanctions on Russia, including banning imports of its oil. This is unlikely to be happen in the near term however, as [Germany] said they are crucial to EU's energy security," IG DailyFX strategist Margaret Yang said in a March 21 note.

Oil prices have added close to $20/b in value over the last three trading sessions and appeared on track to retake highs reached in early March as supply continued to fall short of demand.

In the short-term, oil prices were poised to head only higher, analysts said.

US bank JP Morgan said in early March that Brent crude prices could reach as high as $185/b this year if sanctions against Russian oil exports are implemented, while the Bank of America estimates prices reaching $200/b in a worst-case scenario.

"Geopolitical risks remain elevated and that has made this a one-way trade for oil prices. Trading oil will remain a volatile trade, but it seems energy traders are growing more confident that supply shortages are just around the corner," OANDA senior market analyst Edward Moya said.

Dubai crude swaps and intermonth spreads were also higher in mid-morning Asian trade March 22 from the previous close.

The May Dubai swap was pegged at $106.98/b at 11 am Singapore time, up $4.88/b (4.78%) from the Asian market close March 21.

The April-May Dubai swap intermonth spread was pegged at $4.30/b, up 84 cents/b over the same period, and the May-June intermonth spread pegged at $2.77/b, up 55 cents/b.

The May Brent/Dubai Exchange of Futures for Swaps spread was pegged at $11.51/b, up $1.51/b.