Oil Snaps 4-Day Rally Following EU Decision on Russia

By Barani Krishnan

Oil prices experienced their first decline in five days as market participants expressed dissatisfaction with Europe’s ongoing hesitance regarding its proposed ban on Russian oil. The uncertainty ahead of U.S. stockpile data, expected after Tuesday’s market closure, resulted in volatile price movements that ultimately led to a lower close.

Adding pressure to oil prices, reports emerged that the Biden administration was set to grant U.S. oil company Chevron Corp approval to discuss potential business reopening with the Venezuelan government, temporarily lifting a ban on such negotiations.

West Texas Intermediate (WTI) crude, traded in New York, closed at $112.40, declining by $1.80 or 1.6%. The U.S. crude benchmark had seen a significant rise of 14.5% over the previous four sessions, hitting a seven-week high of $114.90 on Monday. Meanwhile, London-traded Brent crude settled at $111.93, down $2.31 or 2%, after climbing 11.5% between May 10 and 16, reaching a one-month high of $114.79 in the last session.

Ed Moya, an analyst at OANDA, noted, “Crude prices initially surged as China’s efforts against COVID-19 appeared to be progressing, but much of those gains were relinquished after U.S. officials indicated a possible shift in strategy towards Russian crude from an embargo to tariffs.” He added, “The oil market remains tight, but if the EU chooses to implement tariffs on Russian crude rather than phase them out, we may see some exhaustion in the oil price rally.”

Market participants were also anticipating U.S. weekly oil inventory data, set to be released after the market closure by the American Petroleum Institute (API). The API is expected to provide a report around 4:30 PM ET (20:30 GMT) detailing the closing balances of U.S. crude, gasoline, and distillates for the week ending May 13, serving as a precursor to the official inventory data due the following day from the U.S. Energy Information Administration (EIA).

Analysts expect the EIA to report a build of 1.38 million barrels for the previous week, a decline from the 8.49 million barrel increase reported for the week ending May 6. For gasoline, the expectation is for a draw of 1.33 million barrels, compared to the previous week’s 3.61 million-barrel decline. Regarding distillates, a reduction of 800,000 barrels is anticipated, contrasting with the previous week’s shortfall of 913,000 barrels.