Oil prices climbed to nearly three-week highs on Monday as fears over tight global supply grew, with the deepening crisis in Ukraine raising the prospect of heavier sanctions by the West on top exporter Russia.
U.S. West Texas Intermediate futures slightly dipped 54 cents, or 0.52%, to $103.72 a barrel, having gained to as high as $108.55, the highest since March 30.
Ahead of Easter weekend holidays, both contracts gained more than 2.5% on Thursday on news that the European Union might phase in a ban on Russian oil imports.
EU governments said last week the bloc’s executive was drafting proposals to ban Russian crude, but diplomats said Germany was not actively supporting an immediate embargo.
Those comments came before tensions grew in the Ukraine crisis over the weekend, with Ukrainian soldiers resisting a Russian ultimatum to lay down arms on Sunday in the pulverised port of Mariupol. Moscow, which calls its actions in Ukraine a “special operation”, said its forces had almost completely seized the city.
“Continued war between Russia and Ukraine with no signs of a ceasefire fuelled supply fears, especially as demand is expected to pick up as driving season nears in the northern hemisphere,” said Chiyoki Chen, chief analyst at Sunward Trading.
The International Energy Agency had warned that roughly 3 million barrels per day (bpd) of Russian oil could be shut in from May onwards due to sanctions, or buyers voluntarily shunning Russian cargoes.
Russian oil production has continued to slide in April, declining by 7.5% in the first half of the month from March, the Interfax news agency reported on Friday.
“The oil market will likely stay on a bullish trend this week with limited additional supply coming from major oil producers to offset a reduced flow from Russia,” said Kazuhiko Saito, chief analyst at Fujitomi Securities Co Ltd.
“Soaring U.S. heating oil prices were also behind the recent rally as expectations grew that U.S. petroleum market would get tighter due to increasing demand to export to Europe.”
The Organization of the Petroleum Exporting Countries (OPEC and its allies in a grouping known as OPEC+, which includes Russia, have rebuffed Western pressure to raise output at a faster pace under a previously agreed deal to boost supply.
An OPEC report last week showed OPEC output in March rose by just 57,000 bpd to 28.56 million bpd, lagging the 253,000 bpd rise that OPEC is allowed under the OPEC+ deal.
Adding to pressure, Libya halted oil production from its El Feel oilfield on Sunday and two sources at Zueitina oil port said exports there had been suspended after protesters calling for Tripoli-based Prime Minister Abdulhamid al-Dbeibah to resign took over the sites.
U.S. oil production forecasts, however, are being revised upwards despite labour and supply chain constraints, as higher prices spur more drilling and well completion activity, according to industry experts.