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Oil Turns Into Bulls’ Play Again as Germany Prepares for Russia Ban

Commodities Apr 28, 2022 02:57PM ET
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© Reuters.

By Barani Krishnan

Investing.com -- The outcome oil bulls had waited weeks for finally seems to be here — a Germany reportedly ready to ban Russian oil — handing the market back to the longs, just ahead of the next OPEC+ meeting where more jawboning could push prices higher.

After being stifled lately by the strong dollar and China’s Covid problems and related lockdowns, crude got a full green signal on Thursday from a Wall Street Journal report that Berlin was no longer opposed to an embargo on Russian oil — a dynamic that could further tighten supplies in the already-stressed global energy market.

Reuters reported that the WSJ article echoed comments from Germany's Economy Minister Robert Habeck on Tuesday, when he said the EU's largest economy could cope with an EU embargo on Russian oil imports and that it was hoping to find ways to replace Russian supplies with others.

Crude prices, treading in negative waters prior to the WSJ report, shot up more than $2 a barrel as the story went beyond Germany, with traders questioning how some European countries that virtually got every drop of their oil from Russia would survive the ban. Germany itself imported 35% of its oil from Russia before the Ukraine invasion and the sanctions against Moscow.

Brent crude, the London-traded global benchmark for oil, settled up $2.27, or 2.2%, at $107.59 a barrel.

West Texas Intermediate, or WTI, the New York-traded benchmark for U.S. crude, settled up $3.34, or 3.3%, at $105.36 per barrel.

With OPEC+ due to meet in a week, the market could be on an extended recovery from this week’s lows of beneath $100.   

OPEC+, led by the 13-member Saudi-controlled Organization of the Petroleum Exporting Countries and 10 other oil producers steered by Russia, has pushed prices up each time it met over the past year by offering a meager 400,000 barrels per day hike in monthly production — and then not even fulfilling that.

Beyond the May 5 OPEC+ meeting, prices could turn volatile again, some analysts said.

“The same factors remain at play here and could be the catalyst for an eventual breakout, be it further Chinese lockdowns, slow output growth from OPEC+, new supply disruptions, larger reserve releases etc,” said Craig Erlam, analyst at online trading platform OANDA. 

“Ultimately, we're continuing to see consolidation in crude markets, with the range tightening and potentially setting us up for a volatile breakout in the coming weeks.”

John Kilduff, partner at New York energy hedge fund Again Capital, concurred.

“As a result of this, oil from the free world is going to be more expensive, and Iron Curtain oil will plunge further in value and be discounted more heavily," Kilduff said, using a Soviet-era reference for Russian oil.

Adam Button, analyst on the ForexLive platform, said politics could further complicate the situation for some European states. He referred to reports about plans to supply a refinery in Gdansk with non-Russian oil, while the refinery itself was owned by Russia’s Rosneft.

"What's (also) not addressed here is the many other countries in eastern Europe that rely on Russian oil -- some of them 100%,” Button said.

Oil Turns Into Bulls’ Play Again as Germany Prepares for Russia Ban
 

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Comments (11)
Liam LL
Liam LL Apr 28, 2022 5:03PM ET
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Well, it's game. They are happy with higher oil prices. So that They can be granted for so called green energy. Taxpayers pays everything.
Sam Lowry
SamLowry Apr 28, 2022 3:19PM ET
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Ban only works if no one else left to sell to,  otherwise the higher the price the higher the profits for the Putin,  even if the price is discounted like to India.  Also those countries buying oil from Putin should be boycotted from selling refined products.
Barani Krishnan
Barani Krishnan Apr 28, 2022 3:19PM ET
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Very true, SamLowry.
Picaso Fish
Picaso_Fish Apr 28, 2022 3:08PM ET
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Don't pay the Russians for the invasion of another soverign nation! Not so easy I guess to stop the rich from profiting off this.
Picaso Fish
Picaso_Fish Apr 28, 2022 3:06PM ET
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laughing we can't have the ruble continue to shoot up can we? Look, I'm horrified by what's happening, but Russia should not be allowed to profit from this. If the west and europe can not stop the ruble and russian business conditions from accelerating, they should stand down. It's wrong to pay Putin to invade Ukraine
Barani Krishnan
Barani Krishnan Apr 28, 2022 3:06PM ET
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India is among the countries weakening the impact of the Western sanctions. Being a Russian ally since Soviet days, they will do what Moscow wants them to -- in a sense like how Jerusalem and Washington would look out for each other.
Barani Krishnan
Barani Krishnan Apr 28, 2022 3:06PM ET
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India is among the countries weakening the impact of the Western sanctions. Being a Russian ally since Soviet days, they will do what Moscow wants them to -- in a sense like how Jerusalem and Washington would look out for each other. India only wants to de(stroy) Pakistan just like how Pakistan wishes to wipe India off the face of the earth. Theirs is a parallel to the Iran-Jewish dynamic. It's all political at the end of the day.
Barani Krishnan
Barani Krishnan Apr 28, 2022 3:06PM ET
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India is among the countries hobbling the impact of the Western sanctions. Being a Russian ally since Soviet days, they will do what Moscow wants them to -- in a sense like how Jerusalem and Washington would look out for each other. India only wants to destroy Pakistan just like how Pakistan wishes to wipe India off the face of the earth. Theirs is a parallel to the Iran-Jewish dynamic. It's all political at the end of the day.
Andrew Ulferts
Andrew Ulferts Apr 28, 2022 2:58PM ET
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We will have some more bullish catalysts for the next week heading into earnings season for oil companies, pumping their equities, then Covid will return and the SPR will predictibly drown our commercial stockpiles again, and so on and so forth. I am going to swing trade oil equities now. It’s elementary.
Ron Koenig
Ron Koenig Apr 28, 2022 2:22PM ET
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Prior to 1950 coal gasification was the norm and both Germany and Poland have got lots!!
Billy Foos
Billy Foos Apr 28, 2022 1:58PM ET
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Hang on.. Why is Germany banning Russian oil? Oh because their government doesn’t like Puti Poo.. So now the people get to starve. Lucky for them they have a populous that doesn’t think for theirselves and they’ll blame RUSSIA!!!
Show previous replies (1)
Barani Krishnan
Barani Krishnan Apr 28, 2022 1:58PM ET
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Asitha Wijerathne  Each country does what works for it. I appreciate the resolve of the European governments and truly love the support shown by their people for doing what's morally right.
IT Pro
IT Pro Apr 28, 2022 1:58PM ET
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Barani Krishnan  But what is morally right?? Providing weapons to ukraine and using it as a Nato pawn? Morally right didnt exist when Ukrainian forces were butchering russian speaking Ukrainians in the Donbas area. Morally right didnt exist when Nato was surrounding Russia for the past decade. Politicians make "morally right" decisions. Common man pays higher taxes, higher fuel prices, higher food prices with falling incomes.
Barani Krishnan
Barani Krishnan Apr 28, 2022 1:58PM ET
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IT Pro  It's interesting that Russian aggressions don't seem to make it to this laundry list of yours :) Anyway, my point is Europe's perception of what's morally right and the people of Europe are supportive of their governments, generally. It's their price to pay, for what they believe in. You, meanwhile, can continue fighting their ideology.
IT Pro
IT Pro Apr 28, 2022 1:58PM ET
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Barani Krishnan  " Europe's perception of what's morally right" sounds so much better. While my intention here is not to give you lessons in history, I urge you to read up some events that have transpired over the course of last few years that have led to this so called "Russian aggression". You can give it a pass if you dont really care. On a separate note, I think EU will have to swallow their pride and buy russian oil & gas. 35% of  import of russian oil cannot be substituted over night. I am surprised you missed mentioning German minister's remark when he said "Germany would go into recession with Russian energy embargo". Easier said then done.
Barani Krishnan
Barani Krishnan Apr 28, 2022 1:58PM ET
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IT Pro  A coin has two sides and it's a question of which one stands out from a vantage point. I think it's foolish for anyone to assume that NATO would make a conquest of Russia and that the post WW II world order would legitimize such action. Beyond that, any argument is fair game. I'm also aware that it took not a day or two for Germany to reach this decision; and it's something the government in Berlin and its people have to live with. So, Germany shouldn't do what it thinks is right simply because Russia holding the world at ransom with its oil, is it?  "Swallow their pride" ... nice choice of words that shows your utter disdain for other people's ideology.
Mohd Izhar Muslim
Mohd Izhar Muslim Apr 28, 2022 1:52PM ET
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Thank you for the article 💯
Barani Krishnan
Barani Krishnan Apr 28, 2022 1:52PM ET
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You're most welcome, Mohd Izhar. And thanks, as always, for being a reader here.
trevor hron
trevor hron Apr 28, 2022 1:50PM ET
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If Germany is on board the rest of the EU will follow. Im sure our fearless leader promised the world. Then comes out this morning with a pledge to crack down on major oil companies for price gouging. This is definitely ot going to end well. I think the only reason the ban hasnt been put in place is because Germany was so against it. Now thats one less country that’s against it. Im sure the rest will fall into place. Theres no way Saudi and UAE jump in to produce more oil. If anything they will drag their feet saying its the United States fault that there is an oil shortage.
Barani Krishnan
Barani Krishnan Apr 28, 2022 1:50PM ET
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And still, the situation may fix itself, as ultimately, the consumer will balk paying insane prices for anything. No one expected oil to go from pandemic lows of minus $40 to almost $140 in just two years. Likewise, do not discount the unexpected happening again on the downside. The Saudi crown prince should remember that the consumer is king. The way the Saudis are taking advantage of their Asian customers -- whom thus far have done nothing to hurt them politically, is unbelievable, The steepest price hikes by Aramco over the past two months have been aimed at Asia.
trevor hron
trevor hron Apr 28, 2022 1:50PM ET
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Barani Krishnan Yeah it sure seemed like Asia and Saudi Arabia were buddying up and becoming closer allies. China has offered huge weapons sales to make closer ties with the middle east. Saudi Arabia wants safety for their country and their biggest money maker. Something they may definitely consider.
Barani Krishnan
Barani Krishnan Apr 28, 2022 1:50PM ET
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trevor hron  Unfortunately, Asia isn't ONLY China, sir, though that fact gets blighted by the power show Beijing puts on. There are poorer countries in that part of the world that don't deserve to get bullied by OPEC. Natural justice will prevail, ultimately.
trevor hron
trevor hron Apr 28, 2022 1:50PM ET
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Barani Krishnan I’m sure it will. Have to see how the story unfolds. Thanks for the article and insight.
Barani Krishnan
Barani Krishnan Apr 28, 2022 1:50PM ET
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trevor hron  Thanks for the rather respectful and valuable debate, mate.
York Regent
York Regent Apr 28, 2022 1:38PM ET
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German economy will pay a heavy price and its all for the pleasure of the U.S
Barani Krishnan
Barani Krishnan Apr 28, 2022 1:38PM ET
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Doing what's morally correct sometimes come with a price. The French people have backed their president, showing empathy and maturity.
trevor hron
trevor hron Apr 28, 2022 1:38PM ET
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Barani Krishnan I think it’s time this finally happened. Why give Russia a chance to divert all that oil some place else. Stop their production in its tracks. Don’t give them the revenue or an easy way put. EU alone is over $1 billion a day
Barani Krishnan
Barani Krishnan Apr 28, 2022 1:38PM ET
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trevor hron  True, Trevor. Read my response to your earlier comment.
 
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