OIL FUTURES: Overnight rally extends as Libya outages, potential EU sanctions pressure supply outlooks

An overnight crude oil price rally extended in midmorning US trading April 21 as Libya disruptions and concerns of brewing EU sanctions on Russian energy tightened supply outlooks.

At 1524 GMT, NYMEX June WTI was up $1.31 at $103.50/b and ICE June Brent was $1.10 higher at $107.90/b.

"Oil prices rebounded following a drop in US oil inventories and concerns over tighter supplies from Russia and Libya, sparking a recovery from the previous session," UOB Global Economics & Markets Research analysts said in an April 21 note.

NYMEX May ULSD was down 13.50 cents at $3.8381/gal, while May RBOB gasoline was 80 points higher at $3.2928/gal.

French Finance Minister Bruno Le Maire on April 19 told local media that the EU was working out an embargo on Russian oil and urged the bloc to prioritize a Russian oil embargo rather than a ban on gas, while acknowledging that not all EU members were on board with the move.

"Pressure is mounting on Europe to impose sanctions on Russian oil. Germany is planning to stop Russian oil imports by the end of the year," ANZ Research analysts said in an April 21 note.

"Russian oil production is seeing sharp falls in April, with output declining to 10.11 million b/d on a month-to-date basis, against average production of 11.01 million b/d in March," they added.

Market watchers anticipate that the EU will adopt a phased ban on Russian oil and that if it does proceed with an oil embargo, it would be challenging for the US oil to fill the deficit.

"A potential European oil embargo on Russia next week after this weekend's French elections, could see [Brent] move towards the top of the [$120/b] range," OANDA's Senior Market Analyst Jeffrey Halley said in an April 21 note.

Russia's St. Petersburg International Mercantile Exchange said volumes of oil products trades in the first quarter were 16% higher on the year at 6.53 million mt.

Sales of light products increased as refineries started shipping more product to the domestic market after exports diminished in the wake of Russia's invasion of Ukraine, according to market sources.

Elsewhere, Libya has lost more than 500,000 b/d of crude production due to port closures and field shut-ins, S&P Global Commodity Insights reported earlier.

Further declines in US crude stocks also added support to prices, analysts said.

"EIA weekly numbers were constructive with US commercial crude oil inventories declining by 8.02 million barrels over the last week, which would be the largest weekly decline in crude inventories since January 2021," said ING analysts Warren Patterson and Wenyu Yao in an April 21 note.

"Given the structural changes we are seeing in the global oil market regarding Russian supply, along with the expected growth in US crude oil output, we would expect that the US becomes an even larger net exporter of oil and products in the months and years ahead," they added.