Oil Market Dips as EU Tweaks Russian Energy Sanctions

By Adedapo Adesanya

The crude oil market closed in the bearish territory on Friday after the European Union said it would allow Russian state-owned companies to ship oil to third countries under an adjustment of sanctions agreed by member states this week.

With this development, Russian state-owned companies, Rosneft and Gazprom, will be able to ship oil to third countries in a bid to limit the risks to global energy security.

Under tweaks to sanctions on Russia that came into force on Friday, payments related to purchases of Russian seaborne crude oil by EU companies would not be banned.

“With a view to avoiding any potential negative consequences for food and energy security around the world, the EU decided to extend the exemption from the prohibition to engage in transactions with certain state-owned entities as regards transactions for agricultural products and the transport of oil to third countries,” the EU said in a statement.

This might signify that supply fears were easing slightly after Libya resumed production at several oil fields earlier this week and the price of Brent crude dropped 0.64 per cent to trade at $103.20 per barrel, while the West Texas Intermediate (WTI) crude fell by 1.71 per cent to $94.70 per barrel.

Earlier in the week, the first tankers arrived in Libya to load oil for export, ending a force majeure on key oilfields and ports that had been in place since April.

Libya now expects to double crude output to 1.2 million barrels per day in a matter of 10 days, but this is threatened by the possible escalation of friction among factional parties seeking to hold political power.

Signs of strong demand in Asia propped up the Brent benchmark, putting it on course for its first weekly gain in six weeks.

Demand in India has remained strong, with refining holding above pre-pandemic levels, while China is expected to make great efforts to recover in the third quarter of this year.

This is happening as the global economy looks increasingly likely to be heading into a serious slowdown, just as central banks aggressively reverse ultra-loose monetary policy adopted during the pandemic to support growth.

Investors will also be watching for the US Federal Reserve decision on interest rates next week. Fed officials have indicated that the central bank would likely raise rates by 75 basis points at its July 26-27 meeting.