Oil Prices Decline as EU Ban on Russian Supplies Encounters Hungarian Resistance

By Gina Lee

Oil prices declined on Tuesday morning in Asia, starting the session on a lower note. The European Union’s (EU) efforts to impose a ban on Russian oil imports, aimed at tightening global supplies, has faced challenges.

Prices for crude oil faced a slight decrease, with one benchmark edging down 0.18% to $114.03 and another dropping 0.20% to $111.60.

On Monday, EU foreign ministers were unsuccessful in persuading Hungary to lift its veto against the proposed oil embargo on Russia, which was initiated in response to the invasion of Ukraine on February 24. This failure leaves the EU short of the unanimous approval needed from all member states for the embargo to be enacted.

From the demand perspective, investors are processing recent data from China, which reported an 11% reduction in crude oil processing in April compared to the previous year. Ongoing COVID-19 lockdowns have resulted in daily throughput reaching its lowest levels since March 2020, as refiners cut back operations in response to diminished consumption.

On the other hand, while Chinese demand is waning, U.S. producers are ramping up production to replenish inventories that have been depleted due to the Ukraine conflict and the aftermath of COVID-19. According to data from the U.S. Department of Energy released on Monday, inventories in the Strategic Petroleum Reserve have fallen to 538 million barrels—marking the lowest level since 1987.

In Texas and New Mexico, where the largest U.S. shale oil basin is located, oil output in the Permian region is projected to increase by 88,000 barrels per day (bpd), reaching a record 5.219 million bpd in June 2022, as reported by the U.S. Energy Information Administration’s (EIA) productivity report.

As the market awaits further announcements later in the day, investors remain vigilant about the ongoing oil supply dynamics.