Crude oil hits $120 a barrel as EU considers banning Russian oil

War in Ukraine is the principal driver of a six-month period of sustained price increases

Brent crude is on course for a sixth straight monthly price rise in the longest such run in more than a decade.

Oil climbed to a two-month high as China eased anti-virus lockdowns and the EU worked on a plan to ban imports of Russian crude.

Brent crude rose above $120 a barrel during the session, extending last week’s 6% rally, to reach the highest intraday level since March 25.

China’s key commercial hub of Shanghai allowed all manufacturers to resume operations from June, while officials said Beijing’s coronavirus outbreak is under control.

EU leaders intend to reach a political agreement on an embargo on Russian oil to punish Moscow for its invasion of Ukraine. The EU had so far failed to agree on a revised sanctions package, with Hungary refusing to back a compromise despite proposals aimed at ensuring its oil supplies keep flowing.

Price still climbing

Brent crude is on course for a sixth straight monthly climb, in what would be the longest such run in more than a decade.

The rise has been driven by the fallout from the war in Ukraine, as well as increased demand as more economies return from Covid-related restrictions.

In the US, the summer driving season kicked off at the weekend with retail petrol prices surging to record highs.

According to GasBuddy data, weekly US gasoline demand rose during Saturday and Sunday compared to the previous week and was 1.2% above the average of the last four weeks.

“It’s tight supply, Chinese demand, and the beginning of the US driving season in focus,” said Ole Hansen, head of commodities strategy at Saxo Bank.

Opec+ output lagging

At the same time, the Opec+ group has fallen behind production targets and is struggling to meet quotas.

China’s dogged adherence to its Covid zero policy at all costs — epitomised by Shanghai’s lockdown that began in late March — has sapped energy demand, and an easing would help to support global consumption.

Administration officials have warned of the economic damage stemming from the curbs, and pledged support to offset the impact.

With a meeting due this week of the Organization of Petroleum Exporting Countries and allies on supply policy, leading member Saudi Arabia is expected to boost its official July prices.

Saudi Aramco may raise sales to Asia next month by $1.50 a barrel, a Bloomberg survey showed.

The surge in energy prices has contributed to a sharp pick-up in the pace of inflation, spurring central bankers to move toward tighter monetary policy.

•  Bloomberg