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Title: Oil extends rally on prospect of fresh Russia sanctions

Apr 05, 2022 03:15AM ET

By: AnalysisWatch

Oil futures climbed on Tuesday as the United States and Europe planned new sanctions against Moscow over allegations of war crimes by Russian soldiers in Ukraine, raising concerns about global supply constraints while nuclear negotiations with Iran stalled.

Brent crude futures rose $1.87, or 1.7 percent, to $109.40 per barrel at 2:15 AM ET, while West Texas Intermediate crude futures rose $1.83, or 1.8 percent, to $105.11 per barrel.

Both contracts briefly gained more than $2 a barrel in early Asian trading after Japanese Industry Minister Koichi Hagiuda said the International Energy Agency (IEA) was still hammering out the details of a planned second round of coordinated oil relief.

Global oil futures contracts moved more than 3% higher on Monday after Russia threatened more sanctions over the killing of civilians in Ukraine and talks in Vienna to revive the nuclear accord with Iran were suspended. The deal could bring more Iranian barrels to the market. Iran blamed the United States for the breakdown in talks.

Expectations were growing that Europe would eventually take action to limit transactions with Russia's energy sector, which would further restrict supplies, said Jeffrey Halley, a senior analyst at OANDA.

Tina Teng, market analyst at CMC Markets APAC & Canada, expects oil prices to be supported by geopolitical tensions in the coming days despite efforts by the U.S. and its allies to boost supply.

Consultancy Wood Mackenzie estimated on Monday that EU members and advanced economies, including Japan and South Korea, could "swap" about 650,000 barrels a day of Russian oil for similar grades and volumes. These would come mainly from volumes from the Middle East, which are typically purchased by China and India.

The move is expected to boost demand for oil in the Middle East, where major exporter Saudi Arabia set record prices for supplies to Asia in May.

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