WTI hits fresh weekly highs in $107.00s as markets focus on EU/Russia energy trade tensions

• WTI hit fresh weekly highs in the $107.00s on Friday and is eyeing last week’s highs above $109.00.
• EU/Russia gas tensions and the growing risk of an EU embargo on Russian oil imports has supported prices this week.
• But China demand concerns as the country continues to fight its Covid-19 outbreak remains a downside risk.

Oil prices remain on the front foot as the weekend approaches, with front-month WTI futures currently trading at weekly highs in the mid-$107.00s per barrel area, up nearly $2.50 on the day and on course for a fourth successive daily gain. At current levels just above $107.50, Wti looks on course to post a weekly gain of about $6.0, having reversed more than $12 higher versus earlier weekly lows in the $95.00s. WTI bulls have last week’s highs just above $109.00 in their sights, a break above which could open the door for a push into the $110s.

The main catalyst behind this week’s rally in crude oil markets has been an increased focus on Russia/Europe tensions regarding energy trade. Earlier in the week, Russia halted gas exports to two European countries (Poland and Bulgaria) that have refused to pay in roubles, triggering a surge in gas prices on fears of a larger blockade on Russian gas. Later, reports began doing the rounds suggesting Germany has dropped its opposition to a blanket ban on all Russian oil imports.

While an EU ban on Russian oil imports would exert further downwards pressure on Russia’s benchmark Ural grade of crude oil, it exerts upward pressure on other global crude oil grades, like WTI, as European buyers look for new markets. An official announcement of a ban on Russian oil imports next week could be a key catalyst to launch WTI back above $110.

Amid the heightened focus on geopolitical and energy trade tensions with Russia, Chinese lockdown concerns and the potential impact on Chinese oil demand have taken a back seat. However, analysts note that if the lockdowns in Beijing were to widen in the coming days, or Covid-19 was to spread to more major urban centres, WTI’s recent upwards progress would once again be at risk.

Looking ahead to next week, major central banks like the Fed will be meeting and likely lifting interest rates, which could keep broader risk appetite ropey. Further weakness in, say, US equity markets could weigh on crude oil prices. OPEC+ will also be in focus with the group expected to stick to their current output policy of incremental 400K barrel per day output hikes each month once again in June. China risks aside, it seems likely that Russia supply concerns and OPEC+’s slow approach to increasing output should be able to keep WTI underpinned above $100 for the time being.