Oil Prices Decline as Investors Monitor EU Embargo Stalemate, Gasoline Insights by Bloomberg

Oil prices have declined amid indications that the European Union is facing difficulties in reaching a consensus on a ban of Russian imports, coupled with a drop in gasoline prices from last week’s peaks.

In early trading in Asia, West Texas Intermediate slipped below $110 per barrel after a relatively stable close on Monday. The EU, which comprises 27 member states, is expected to struggle in approving the ban during the upcoming leaders’ meeting, primarily due to Hungary’s opposition to the plan. Nevertheless, German Economy Minister Robert Habeck expressed optimism that the embargo could be implemented “within days.”

Gasoline futures in the U.S. dropped as much as 4% in early trading after they reached a record high last Monday due to strong demand and declining stockpiles. Recent data show that U.S. imports of European gasoline surged to a six-month high during the week ending May 19.

For the past two weeks, U.S. benchmark oil prices have fluctuated around $110 per barrel as investors consider the implications of the ongoing conflict in Ukraine, including actions aimed at penalizing and isolating Russia, along with the global demand outlook. While U.S. consumption is expected to rise with the busy summer driving season approaching, energy use in China has been limited due to strict lockdowns imposed in major cities to manage COVID-19 outbreaks.

In response to the economic challenges posed by these restrictions, China’s State Council, led by Premier Li Keqiang, has introduced measures to mitigate the impact, which include policies to facilitate car purchases, ensure smooth cargo transport, and increase the availability of domestic flights.

The oil markets maintain a backwardation structure, indicating a bullish trend where short-term prices surpass those of longer-term contracts. The prompt spread for Brent crude, which reflects the difference between its two nearest contracts, has risen to $2.55 per barrel, compared to $2.08 a week prior.