Oil extends rally on prospect of fresh Russia sanctions by US, Europe

Oil prices rose on Tuesday as the United States and Europe planned new sanctions to punish Russia over alleged war crimes in Ukraine, raising concerns of tighter global supply, while Iran’s nuclear talks with world powers stalled.

Brent crude was up 90 cents, or 0.8 percent, to $108.43 a barrel at 0801 GMT, and US West Texas Intermediate was up 78 cents, or 0.8 percent, at $104.06 a barrel.

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“With the European Union working on new sanctions that may target Russia’s oil industry, crude prices could edge up in the near term,” said Lukman Otunuga, analyst at FXTM.

The West is planning new sanctions to punish Russia over civilian killings in Ukraine. US President Joe Biden’s national security adviser said new US sanctions against Moscow would be announced this week.

There were mounting expectations Europe would take action to reduce transactions with Russia’s energy sector, further squeezing supplies, OANDA senior analyst Jeffrey Halley said.

To calm oil prices, US-allied countries agreed last week to their second coordinated oil release from strategic reserves in a month. However, Japanese industry minister Koichi Hagiuda said on Tuesday the International Energy Agency (IEA) was still examining details of the release.

Oil prices jumped over $2 after his comments.

Ole Hansen, head of commodity strategy at Saxo Bank, expects oil prices to trade between $90 and $120 per barrel during the second quarter of the year, amid several uncertainties in the market.

“Key events that could trigger additional uncertainty remain the prospect for an Iran nuclear deal, Venezuela being allowed to increase production and, not least, an increase US shale oil production,” he said.

The United States still believes there is an opportunity to overcome the remaining differences with Iran in talks over its nuclear program, State Department spokesman Ned Price said on Monday.

“Any signs that the United States and Iran are moving closer to agreeing on a nuclear deal –- which would return up to 1.3 million barrels per day of Iranian oil to global markets –- would weigh down on oil prices,” BCA research said.

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