Oil prices edged higher on Wednesday with rising supply risks after a proposal of further sanctions on Russia, despite more demand concerns after a lockdown extension in China’s financial hub Shanghai, coupled with a rise in the US dollar index that is making dollar-priced oil more expensive.
International benchmark Brent crude was trading at $106.95 per barrel at 0708 GMT for a 0.29% increase after closing the previous session at $106.64 a barrel.
American benchmark West Texas Intermediate (WTI) was at $101.98 per barrel at the same time for a 0.02% gain after the previous session closed at $101.96 a barrel.
Fueling supply fears in the market, the EU Commission proposed the fifth package of sanctions on Russia amid the Ukraine crisis.
The package will include an import ban on coal from Russia worth €4 billion ($4.3 billion) per year, cutting another important revenue source for the country.
In addition to a ban on four key Russian banks, the package will also include a ban on Russian vessels and Russian-operated vessels from accessing EU ports. The commission said sanctions on Russian oil will be debated, however, the block is currently highly dependent on Russian oil and gas.
“One idea being floated is a tax or tariff on Russian oil imports to increase their price and reduce demand,” said ANZ commodity strategist Daniel Hynes.
Meanwhile, the US has confirmed that it will announce additional sanctions on Russia on Wednesday in coordination with its allies in Europe in response to the war in Ukraine.
The measures will target Russian government officials, their family members and Russian-owned financial institutions as well as state-owned enterprises.
This latest round of sanctions comes in the wake of photos and videos depicting mass killings in the Ukrainian city of Bucha, which has been deemed “genocide” by several countries. Bucha had been occupied by Russian forces until they withdrew from the area on March 30.
-Estimated build in US crude stocks limits further increases
On the demand side, prices came under pressure after the world’s second-largest oil consumer China extended a lockdown in its most populous city Shanghai, which has been battling a new wave of coronavirus infections for more than a month.
Initially imposed in only parts of the city, the restrictions will now cover the entire city for an undetermined time.
Blunting the price momentum, the American Petroleum Institute (API) announced late Tuesday its estimate of a rise of over 1.08 million barrels in US crude oil inventories relative to the market expectation of a 1.6 million-barrel decrease.
The predicted increase in stockpiles signals a drop in crude demand in the US, the world's top oil consumer, putting downward pressure on oil prices.
However, crude oil prices, which are indexed to the US dollar, came under pressure with the rising value of the greenback.
The US dollar index, which measures the value of the American dollar against a basket of currencies including the Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, rose 0.19% to 99.66.
By Sibel Morrow