Oil Rises 4% Amid Record High U.S. Gasoline Prices, Reports Reuters

By Scott DiSavino

Oil prices surged approximately 4% on Friday, fueled by record-high U.S. gasoline prices, signs that China may ease pandemic restrictions, and concerns about supply shortages if the European Union moves forward with a ban on Russian oil.

Brent crude futures increased by $4.10, or 3.8%, closing at $111.55 a barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude climbed by $4.36, or 4.1%, to finish at $110.49, marking the highest WTI close since March 25 and its third consecutive weekly rise. On the other hand, Brent experienced a decline after two weeks of gains.

Gasoline futures in the U.S. reached an all-time high after stockpiles decreased for the sixth straight week, causing the gasoline crack spread—an indicator of refining profit margins—to hit its highest point since April 2020, when WTI prices turned negative.

"There has not been an increase in U.S. gasoline storage since March," noted Robert Yawger, executive director of energy futures at Mizuho. He emphasized that gasoline demand is expected to surge with the upcoming summer driving season, starting with the U.S. Memorial Day weekend.

The U.S. 3:2:1 crack spread, which also includes diesel, achieved a record high, as reported by Refinitiv data dating back to May 2021. The American Automobile Association reported that gasoline prices at pumps reached unprecedented levels on Friday, with averages hitting $4.43 per gallon for gasoline and $5.56 for diesel.

Oil prices have been experiencing volatility, mainly due to fears that a potential EU ban on Russian oil could disrupt supplies, coupled with concerns that a resurgence in COVID-19 could dampen global demand.

According to Louise Dickson, an analyst at Rystad Energy, "An EU embargo, if fully enacted, could take about 3 million barrels per day of Russian oil offline, which would severely disrupt and alter global trade flows, leading to market panic and significant price fluctuations."

This week, Russia imposed sanctions on several European energy firms, heightening supply concerns. In China, government officials have announced intentions to support the economy, and Shanghai is set to ease coronavirus restrictions and reopen shops within the month.

"Crude prices rallied on optimism that China’s COVID situation is stabilizing and as investors seek out riskier assets," remarked Edward Moya, senior market analyst at OANDA.

Following a tumultuous week of trading, global shares rebounded, boosting stock indexes across the United States and Europe. However, inflationary pressures and interest rate hikes have strengthened the U.S. dollar to its highest point in nearly two decades against a basket of currencies, which makes oil more expensive for buyers using other currencies.

The EU has indicated progress in reviving nuclear negotiations with Iran. Although the U.S. acknowledged the EU’s efforts, it clarified that no agreement has been reached yet, nor is there certainty that one will be established. Analysts believe an agreement with Iran could introduce an additional 1 million barrels per day of oil supply into the market.