Oil rises $2/barrel after G7 pledges new Russian sanctions

Crude oil storage tanks at Kinder Morgan Terminal in Sherwood Park, near Edmonton, Alberta, Canada, November 14, 2016. REUTERS/Chris Hellgren

HOUSTON (Reuters) – Oil rose $2 a barrel on Monday with a possible tightening of supplies looming on the market as the Group of Seven nations promised to ramp up pressure on Russian President Vladimir Putin while actually lowering energy prices.

Brent crude futures closed $1.97, or 1.7%, at $115.09 a barrel, while US West Texas Intermediate crude closed $1.95, or 1.8% higher, at $109.57 a barrel.

The group of rich countries pledged to stand by Ukraine “for as long as possible”, proposing an end to the price of Russian oil as part of new sanctions that hurt Moscow’s finances.

“I think if they are going to apply a cap on the buying and selling price of Russian oil, it is hard for me to imagine how that will be implemented, especially when China and India become Russia’s biggest customers,” Houston-based oil said. Counsellor Andrew Lebow.

Vivek Dar, an analyst at the Commonwealth Bank of Australia, noted that “there is nothing to prevent Russia from banning exports of oil and refined products to the G7 economies in response to a price cap, which has exacerbated the shortage conditions in the global oil and refined products markets.”

A French presidency official said the international community should explore all options to ease the tightness of energy supplies, including talks with producing countries such as Iran and Venezuela. Oil exports to both OPEC members have been restricted due to US sanctions.

Both benchmarks closed lower for the second week in a row on Friday as higher interest rates in major economies boosted the dollar and raised fears of a global recession.

Recession fears and expectations of higher interest rates caused volatility and risk aversion in the futures markets, with some energy investors and traders pulling back, while spot crude oil prices remained strong with rising demand and a supply crunch.

For now, urgent supply concerns have outweighed growth concerns.

Sources said that members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies, including Russia, known as OPEC+, will likely stick to a plan to increase oil production in August when they meet on Thursday. Read more

A report seen by Reuters showed that OPEC also reduced the expected surplus in the oil market in 2022 to one million barrels per day, down from 1.4 million barrels per day previously.

OPEC member Libya said on Monday it may have to halt exports in the Gulf of Sirte region within 72 hours amid disruptions that have limited production.

Adding to supply problems, Ecuador also said it could completely suspend oil production within 48 hours amid anti-government protests in which at least six people have been killed.

Traders also waited for news of when US government oil inventories and other market-moving data would be released after they were not released last week due to server issues.

A preliminary Reuters poll on Monday showed that stocks of crude, distilled and gasoline in the United States likely fell last week.

Additional reporting by Ron Bosso in London and Florence Tan in Singapore. Editing by Margarita Choi, Louise Heavens and Thomas Janowski

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