Crude Edges Higher as EU, U.S. States Cut Taxes to Sustain Demand

© Reuters.

By Geoffrey Smith

AiVIF.com -- Crude oil prices rose on Tuesday, supported by signs that Western governments are taking increasingly drastic measures to sustain consumption in a market artificially tightened by sanctions on Russia.

By 9:25 AM ET (1325 GMT), U.S. crude futures were up 0.1% at $110.06 a barrel, while Brent futures were up 0.5% at $116.14 a barrel. While that’s still some $16 below their peek two weeks ago, prices have been in a steady upward trend for a week as hopes for a quick peace settlement in Ukraine – and for an easing of conditions for getting supplies out of Russia - have faded.

The U.S. states of Maryland and Georgia have already signed into law a one-month suspension of state gasoline taxes, while lawmakers in New York, Illinois, Massachusetts, Michigan, Minnesota, Tennessee and Maine are all considering similar measures. U.S. Gasoline RBOB Futures were up 0.2% at $3.3796 a gallon,

Meanwhile, across the Atlantic, governments across Europe are also preparing temporary cuts in fuel duties, which are typically many times higher than U.S. ones. Italy and France have already announced such measures, while the U.K. is expected to outline something similar when Treasury Chief Rishi Sunak announces his spring spending statement.

Analysts are busy revising their forecasts for prices higher, amid signs that the EU is set to tighten its sanctions on Russia to include purchases of energy. The bloc had previously exempted purchases of Russian oil and gas from its sanctions, unable to find alternative suppliers in the short run.

However, Ukrainian President Volodymyr Zelensky has told European and U.S. lawmakers in a string of impassioned virtual addresses that this allows Russia to keep financing its war in Ukraine – a message that now appears to be getting through. The EU is set to discuss banning purchases of Russian oil at a summit on Thursday, according to diplomats quoted by The Wall Street Journal. Banning gas purchases is, however, still a step too far for Germany and others.

Francisco Blanch, head of global commodities and derivatives research at Bank of America (NYSE:BAC), told Bloomberg TV on Monday that he now sees a peak of $150 a barrel in the summer, with an average price for the year of $110.

“What the Ukraine crisis has done has been to life the entire expectation by at least $25-$30 a barrel,” said Blanch, who had previously expected prices to top out at $120/bbl.

Torbjorn Tornqvist, chief executive of the Russian-linked trading house Gunvor, told an FT event that Russian refiners are already cutting back shipments of diesel due to ‘self-sanctioning’ by western buyers, tightening the global market. He said this would have knock-on effects in crude markets too.

“What does that mean? It means more crude oil will need to be exported instead of the products, and we believe that is not possible and will lead to cutbacks in Russian production,” the FT quoted Tornqvist as saying.