Oil rose higher than $120 a barrel on Monday as tightness in refined fuel markets and concern over supplies from Russia propelled prices to the highest level in two months.
Brent crude, the international benchmark, hit a two-month high of $120.50 a barrel in early trading, up 1 per cent ahead of the July contract’s expiry on Tuesday. US benchmark West Texas Intermediate rose by a similar amount to more than $116 a barrel. The Brent contract for August delivery was up 0.5 per cent at $116.20 a barrel.
The move comes as refined fuel prices such as diesel and gasoline have been boosted by tight supplies at key delivery hubs.
Lower exports of diesel from Russia, which many western companies are shunning or cutting back on following the invasion of Ukraine, have tightened markets even more so than crude.
The gas oil contract in Europe, a proxy for diesel and other distillates, is trading close to record levels near $1,200 a tonne.
Sky-high product prices mean motorists in many countries are paying record prices for diesel and gasoline even as crude was still well below its all-time high of $147.50 a barrel, which it hit in 2008.
An easing of Covid-19 restrictions and government subsidies, however, have helped to support demand, said Keshav Lohiya at Oilytics, a consultancy.
“Despite record high prices in local currencies, political decisions like subsidies continue to distort the market,” said Lohiya. “In addition, post-Covid demand continues to keep mobility very high in Europe, especially with the run-up to summer.”
Traders are monitoring any EU decision on restrictions or an outright embargo on Russian oil purchases in the coming days. Bloc members are due to meet on Monday and Tuesday. A full ban on Russian oil purchases has been opposed by some members such as Hungary, but the EU is keen to increase pressure on Russia.
Reticence from the Opec+ group to accelerate oil production increases is also supporting prices. The group meets on Thursday and is widely expected to stick with its plan of raising production by about 400,000 barrels a month, a target that has been in place since last year.
Concerns about shipping through the Strait of Hormuz, through which a third of seaborne oil exports pass every day, after Iran seized two Greek-flagged tankers on Friday, has added to factors boosting the price.