(Bloomberg) — Crude futures dipped lower as the United Arab Emirates called on its fellow OPEC+ members to boost oil output faster.
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Brent extended earlier losses to fall as much as 7.1% Wednesday after the UAE said it will call on its fellow OPEC+ members to increase output faster. The statement marks a dramatic U-turn that could set the country against fellow members of the producers group. Oil posted huge intraday swings, trading within a range of over $10 a barrel, as Russia’s invasion of Ukraine threatens a major global supply shock.
Oil’s vertiginous climb is contributing to a surge in inflation to the highest level in decades. American gasoline prices rallied to a record Monday while diesel climbed to its highest price since 2008. Soaring pump prices amid Russia’s invasion of Ukraine continue to thwart President Joe Biden’s efforts to tame inflation and alleviate pain for American consumers.
“The oil market will remain persistently volatile and crude prices will remain supported until a major de-escalation in the war in Ukraine occurs,” said Ed Moya, senior market analyst at Oanda.
The U.S. and U.K. decided Tuesday to halt Russian oil imports after Shell Plc and BP Plc said they are stopping new purchases, but other European nations have been reluctant to commit to similar action. The International Energy Agency said a recently announced stockpile release will amount to almost 63 million barrels of crude and products, but it has done little to cool prices.
Against the market’s fast-moving backdrop, OPEC+ is sitting on the sidelines sticking to its 400,000 barrel-a-day production increase. Russia is one of the key leaders of the cartel, along with Saudi Arabia and a major producer of crude and petroleum products such as diesel.
Russia is a major supplier of refined products to Europe and the threat of fuel supplies drying up in the region has sent diesel markets into a frenzy. U.S. distillates inventories fell to the lowest level since November 2014, dropping 5.23 million barrels, according to government data.
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Oil imports from Russia made up about 3% of all the crude shipments that arrived in the U.S. last year. When other petroleum products are included, such as unfinished fuel oil, Russia accounted for about 8% of oil imports. A planned House vote on the legislation to ban imports was delayed, even as Biden moved ahead with executive action amid growing political pressure to do so.
“The market is awaiting the domino effect of mainland Europe announcing a ban, however, with oil majors announcing that they won’t touch Russian oil, there is already a de-facto ban,”said Keshav Lohiya, founder of consultant Oilytics.
Shell and BP said they won’t make any new purchases of Russian oil and gas, but they can’t immediately disentangle themselves from the country in part due to long-term contracts. It’s a dramatic U-turn for Shell, which faced heavy criticism for its purchase of Russian crude last week, and could have a huge impact on the region’s oil refining.
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