Geopolitics, U.S. Driving Season and China Reopening Altogether Create Perfect Storm for Worldwide Oil Prices

The prices of oil futures continued rising on Tuesday, May 31, after the EU finally made a decision to ban 90% of Russian oil imports by year-end, which apparently sent investors into a frenzy, raising concerns over supply.

U.S. WTI for settlements in July jumped 2.05% to approach $120 per barrel, while Brent for July gained 1.78%, going for $123.83 per barrel at the same time.

President of the European Commission, Ursula von der Leyen, announced that European leaders have reached an agreement to ban the export of Russian oil to the EU, which she claims will effectively cut around 90% of Moscow's oil imports by year-end and means oil at $200/bbl is nothing beyond imagination.

European Council President Charles Michel said that the ban will immediately “cover over two-thirds of imports from the country, likely because the now forbidden sea-borne imports of crude will account for that much”. The ban, however, exempts oil delivered through pipelines, allowing dependent states to continue importing.

Across the pond, also among the most convincing bullish factors, Monday’s Memorial Day traditionally kicked off the official start of the nationwide driving season in the U.S. While the average national gasoline price reached $4.619 per gallon on May 30 – the highest level on record, there does appear to be some demand destruction for the fuel, with GasBuddy data showing that weekly U.S. gasoline demand rose by just 0.5% on a weekly basis and only 1.2% above the average of the last four weeks – not a typical for Memorial Day weekend dynamics.

Other bullish factors for oil are China’s relaxed Covid-19 restrictions and the UK’s recent oil and gas windfall tax, which some oil experts suggest will stifle new investments in the industry. On Friday, BP (BP) said it would review its projects in the country in light of the new tax. Regardless of the long-term effects of such a tax, it may create uncertainty in the market.