Oil prices hit their highest levels in more than two months ahead of the European Union meeting on Russia sanctions

Storage tanks are seen at the Los Angeles Marathon Petroleum refinery, which processes domestic and imported crude oil, in Carson, California, US, March 11, 2022. Photo taken March 11, 2022. Photo taken with a drone. Photograph: Ping Guan/Reuters

SINGAPORE (Reuters) – Oil prices jumped on Monday to their highest level in more than two months as traders waited to see if the European Union would reach a deal on banning Russian oil imports to impose sanctions on Moscow over its invasion of Ukraine.

Brent crude futures for July, which expire on Tuesday, rose 37 cents, or 0.3 percent, to $119.80 a barrel at 0534 GMT, after rising to $120.50 earlier in the session. The Brent contract, the most active for the month of August, rose 67 cents, or 0.6 percent, to $116.23 a barrel.

Meanwhile, US West Texas Intermediate crude futures jumped 78 cents, or 0.7%, to $115.85 a barrel, extending last week’s strong gains.

The European Union is due to meet on Monday and Tuesday to discuss the sixth package of sanctions against Russia for its invasion of Ukraine, measures Moscow calls a “special military operation”.

“If we look at the recent price action, the market seems to have taken into account that the EU may come to an agreement on some form of restrictions on Russian crude,” said Madhavi Mehta, commodity research analyst at Kotak Securities.

“We may only see further upside if it is a complete ban,” she added. “Any deal that is watered down or includes exceptions may not have a significant positive impact.”

European Union governments failed to agree on a Russian oil embargo on Sunday, officials said, but would continue talks on a deal to ban seaborne shipments of Russian oil while allowing pipeline deliveries, ahead of the summit on Monday afternoon. Read more

Any additional ban on Russian oil would tighten the crude market, which is already under pressure on supplies amid rising demand for gasoline, diesel and jet fuel ahead of the peak summer demand season in the United States and Europe.

Traders said that high refining margins for diesel and gasoline in Europe and the United States pushed the prices of some types of physical crude oil to record levels. Read more

Underlining the market’s tightness, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, together called OPEC+, are set to reject Western calls to accelerate increases in their oil production when they meet on Thursday. Six OPEC+ sources told Reuters it would stick to current plans to add 432,000 bpd in July. Read more

The oil market was also in tension after Iran said on Friday that its navy had seized two Greek oil tankers in retaliation for the United States’ seizure of Iranian oil from an oil tanker off the Greek coast. Read more

“This raises the specter of further disruptions to oil flows through the Strait of Hormuz, which carries a third of global trade,” ANZ Research analysts said in a note.

Oil prices also received support from the decline in the US dollar as investors reduced expectations of a US interest rate hike, and fears about a global recession eased. A weak dollar makes oil less expensive for importers holding other currencies.

Additional reporting by Sonali Paul in Melbourne and Kostav Samanta in Singapore; Editing by Sonali Desai and Kenneth Maxwell

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