Oil prices rise to their highest levels in 2 months as China loosens its COVID curbs

Crude oil prices on Monday climbed to their highest levels since March, as European Union diplomats scrambled to seal a deal on a Russian embargo and China signaled an easing of COVID curbs.

Brent crude was last up around 0.74% to $116.42 a barrel, while WTI crude rose 0.79% to $115.87 a barrel. It’s the first time both Brent and WTI have traded above $115 since March 23, when disruption to the Caspian pipeline intensified supply fears.

Over the weekend, EU negotiators failed to break through Hungary’s opposition to a Russian oil ban ahead of crunch talks among the bloc’s leaders on Monday. European Commission President Ursula von der Leyden is proposing a complete ban on all Russian oil imports.

“It’s unlikely that members come to an agreement when they meet, given that talks have not progressed enough,” ING’s head of commodities strategy, Warren Patterson, said.

The unity of the EU’s 27 countries against Russia could already be coming to an end, Germany’s economy minister said Sunday.

“After Russia’s attack on Ukraine, we saw what can happen when Europe stands united,” Robert Habeck said. “But it is already starting to crumble and crumble again.”

EU diplomats have been in talks for a nearly a month about an embargo in the next round of sanctions, grappling with objections from Hungary’s prime minister, Viktor Orbn. The US and UK have both banned Russian oil imports.

One proposal under discussion is for EU sanctions to include an exemption for Russian oil delivered via the Druzhba pipeline to Hungary, Slovakia and Czechia, Reuters reported.While Brent crude is rising on the efforts to get Hungary on board,Jeffrey Halley, senior market analyst at Oanda, cautioned that was not the key factor.

“The underlying driver though is the massive squeeze on refined products we are seeing around the world, which is lifting the base ingredient for all that diesel and petrol that has got very expensive,” he said.

Also boosting investors’ hopes for the oil supply outlook were moves by China to loosen zero-COVID curbs in key regions. Some public transport services reopened in Beijing on Sunday, and it plans to end a two-month lockdown in Shanghai on June 1.

Concerns about demand for oil from economic powerhouse China have weighed on crude prices as the government pursued tough restrictions to hamper the spread of coronavirus.

The start of the US summer ‘driving season’ will also support high commodity prices, analysts said.

“The U.S. driving season and strong travel demand should help prices,” UBS’s Giovanni Stauvino said. “With supply growth lagging demand growth, the oil market is likely to stay undersupplied.”