Crude Oil Lower After U.S.-EU Sign Gas Deal

© Reuters.

By Peter Nurse 

Investing.com -- Oil prices retreated Friday as some of the supply concerns affecting the European market, in particular, were eased after a partial export resumption from Kazakhstan's CPC crude terminal and the signing of a new gas deal with the U.S.

By 8:40 AM ET (1240 GMT), U.S. crude futures traded 1.4% lower at $110.72 a barrel, while the Brent contract fell 1.3% to $117.50.

U.S. Gasoline RBOB Futures were down 0.1% at $3.3890 a gallon.

The United States agreed Friday to supply more liquid natural gas to the European Union in an effort to help the bloc wean itself off Russian gas imports.

“This initiative focuses on two core issues, one helping Europe to reduce its dependency on Russian gas as quickly as possible and secondly, reducing Europe's demand for gas overall," U.S. President Joe Biden said on Friday.

A factsheet from the White House spoke of an “at least 15 billion cubic meters in 2022, with expected increases going forward.”

"An increase of 15bcm from 2021 levels (when 22bcm was exported to the EU) should be achievable, particularly if we continue to see the strong flows that we have seen so far this year,” said analysts at ING, in a note. “However, it still falls well short of replacing Russian gas imports, which amounted to around 155bcm in 2021.”

Also weighing was the partial resumption of oil loadings at the Caspian Pipeline Consortium terminal on Russia's Black Sea coast, with one of the three moorings at the terminal operational, after a storm stopped exports on Wednesday.

That said, despite Friday’s weakness, both benchmarks are heading for their first weekly gain in three weeks, with Brent was on track for a 9% rise and WTI for a 6% increase.

Concerns over the tight nature of global supply continue, with western sanctions against Russia, the world’s second-largest crude exporter, in response to its invasion of Ukraine on Feb. 24, remaining in place.

So far, the major European countries have chosen not to put in place an oil embargo on Russian exports, failing to follow the U.S. lead, with OPEC suggesting that a possible EU ban would hurt consumers.

However, if Russian President Vladimir Putin turns to unconventional weapons to achieve his goals, this decision may come under fierce pressure.

Traders will keep an eye on data from Baker Hughes about the number of U.S. crude rigs in operation, for clues on future supply, as well as CFTC positioning data later in the session.

The Intercontinental Exchange raised margins for Brent futures by 19% for the May contract from Friday, the third rise this year, making it more expensive for market participants to trade.

“This move will do little to help open interest, which has been in steep decline since mid-February and is basically at the lowest level we have seen since 2015. Falling market liquidity means that the market will likely continue to trade in a volatile manner,” ING added.