Oil rose above $ 120 a barrel on Monday as stiff refined fuel markets and concerns over Russian supplies pushed prices to a two-month high.
Brent crude, the international benchmark, hit a two-month high of $ 120.50 a barrel on initial quotations, up 1% from before the July contract expires on Tuesday. US benchmark West Texas Intermediate rose a similar amount to more than $ 116 a barrel. The Brent contract for delivery in August rose 0.5% to $ 116.20 a barrel.
The move comes as prices for refined fuels, such as diesel and gasoline, have risen due to a tight supply to key delivery centers.
Reducing Russia’s diesel exports, which many Western companies are avoiding or reducing after the invasion of Ukraine, have hardened markets even more than crude.
The contract for diesel in Europe, a proxy for diesel and other distillates, is trading near record levels of close to $ 1,200 a tonne.
Extremely high commodity prices mean that motorists in many countries are paying record prices for diesel and gasoline, even though crude oil was still well below its all-time high of $ 147.50 a barrel in 2008.
However, easing of Covid-19 restrictions and government subsidies have helped support the demand, Keshav Lohiya told Oilytics, a consultant.
“Despite record prices in local currencies, political decisions such as subsidies continue to distort the market,” Lohiya said. “In addition, post-Covid demand continues to maintain very high mobility in Europe, especially in the summer.”
Traders are monitoring any EU decision on restrictions or a total embargo on oil purchases in Russia in the coming days. Bloc members are due to meet on Monday and Tuesday. Some members like Hungary have opposed a total ban on oil purchases in Russia, but the EU is ready to increase pressure on Russia.
The reluctance of the OPEC + group to accelerate the increase in oil production is also supporting prices. The group meets Thursday and is expected to stick with its plan to increase production by about 400,000 barrels a month, a goal that has been set since last year.
Concern over shipments across the Hormuz Strait, through which a third of oil exports run daily, after Iran seized two Greek-flagged tankers on Friday, has been added to the factors that increase the price.