Oil prices climb to over 2-month highs ahead of EU meeting on Russia sanctions

© Reuters. FILE PHOTO: Storage tanks are seen at Marathon Petroleum's Los Angeles Refinery, which processes domestic & imported crude oil, in Carson, California, U.S., March 11, 2022. Picture taken March 11, 2022. Picture taken with a drone. REUTERS/Bing Guan/File P

By Koustav Samanta and Sonali Paul

SINGAPORE (Reuters) -Oil prices rose on Monday, hitting their highest in more than two months, as traders waited to see whether the European Union would reach an agreement on banning Russian oil imports.

The Brent crude futures contract for July, which will expire on Tuesday, was up 47 cents, or 0.4%, at $119.90 a barrel at 0659 GMT, after rising as high as $120.50 earlier in the session. The August Brent contract, which is more active, rose 61 cents, or 0.5%, to $116.17 a barrel.

U.S. West Texas Intermediate (WTI) crude futures jumped 72 cents, or 0.6%, to $115.79 a barrel, extending solid gains made last week.

The EU is due to meet on Monday and Tuesday to discuss a sixth package of sanctions against Russia for its invasion of Ukraine, actions Moscow calls a "special military operation".

"If we look at the recent price movement, it seems that market has factored in that the European Union may reach a deal on some form of restrictions on Russian crude," said Madhavi Mehta, commodity research analyst at Kotak Securities.

"We may see further upside only if it is a complete ban. Any watered-down deal or one which includes exemptions may not have much positive impact," she added.

EU governments failed to agree on an embargo on Russian oil on Sunday but will continue talks on a deal to ban seaborne deliveries of Russian oil while allowing deliveries by pipeline, ahead of the summit on Monday afternoon, officials said.

"It's still quite difficult for the European group to reduce its energy dependency on Russia in the near term. That said, an immediate import ban is less possible, and the demands may keep oil prices afloat in the near term," said Leona Liu, analyst at Singapore-based DailyFX.

Any further ban on Russian oil would tighten a crude market already strained for supply amid rising demand for gasoline, diesel and jet fuel ahead of the peak summer demand season in the United States and Europe.

Sky-high refining margins for diesel and gasoline in Europe and the United States have sent prices for some types of physical crude oil to record highs, according to traders.

Underscoring market tightness, the Organization of the Petroleum Exporting Countries and allies including Russia, together called OPEC+, are set to rebuff Western calls to speed up increases in their additions to oil output when they meet on Thursday. They will stick to existing plans to add 432,000 barrels per day in July, six OPEC+ sources told Reuters.

The oil market was also on edge after Iran on Friday said its navy had seized two Greek oil tankers in retaliation for the confiscation of Iranian oil by the United States from a tanker held off the Greek coast.

Crude prices are also finding support from a weaker U.S. dollar, and China's easing of virus related restrictions, said Sunil Katke, head of commodities retail business at Kotak Securities.

A weaker dollar makes oil less expensive for importers holding other currencies.