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Oil extends slump as Europe softens Russian sanction proposals

© Photographer: Daniel Acker/BloomOil storage tanks in Cushing, Oklahoma. Photographer: Daniel Acker/Bloomberg
Oil storage tanks in Cushing, Oklahoma. Photographer: Daniel Acker/Bloomberg

Oil extended its biggest drop in more than five weeks after the European Union softened its proposed sanctions on Russian crude exports and as economic growth concerns weighed on sentiment.

West Texas Intermediate futures fell below $102 a barrel in Asian trading after sliding around 6% on Monday. The bloc will scrap a proposed ban on EU-owned vessels transporting Russian crude after objections from members including Greece. Talks on a sixth package of sanctions are continuing.

Central banks have tightened monetary policy to rein in inflation that’s been fanned by Russia’s war in Ukraine, and investors will be keenly watching the April U.S. consumer-price index print on Wednesday. The Bloomberg Commodity Spot Index – which tracks 23 energy, metals and crop futures contracts – slumped 4.3% on Monday, the biggest decline since early March.

The oil market has been gripped by a volatile period of trading since Russia’s invasion of Ukraine in late February. The US and UK have already moved to ban oil imports from the OPEC+ producer, while the EU is seeking to overcome objections to similar measures from Hungary. Some progress has been made, the Hungarian foreign minister said after recent talks.

“Oil has been unable to escape the broader risk-off move that we have seen across markets,” said Warren Patterson, Singapore-based head of commodities strategy for ING Groep. “Hungary’s opposition suggests that we could see a further watering down in proposed sanctions.”

Prices

  • WTI for June delivery lost 1.3% to $101.80 a barrel on the New York Mercantile Exchange at 12:02 p.m. in Singapore. Futures tumbled 6.1% on Monday.
  • Brent for July settlement fell 1.3% to $104.61 a barrel on the ICE Futures Europe exchange after sliding 5.7% on Monday.

A stubborn Covid-19 resurgence in China has further added to volatility. Virus lockdowns have strained the economy, while Chinese Premier Li Keqiang warned of a “complicated and grave” employment situation as Beijing and Shanghai tightened curbs in a bid to contain outbreaks.

Brent remains in a bullish backwardation structure, where near-dated contracts are more expensive than later-dated ones. The prompt timespread for the benchmark was $1.37 in backwardation, compared with $1.24 a week ago.

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