Oil prices up on tight supply, EU wrangle over curbs

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Oil prices up on tight supply, EU wrangle over curbs

MELBOURNE Reuters - Oil prices went up on Thursday, extending a cautious rally this week on signs of tight supply, while the European Union EU wrangles with Hungary over plans to ban imports from Russia, the world's second largest crude exporter, after it invaded Ukraine.

The July crude futures for July settlement went up 7 cents, or 0.1%, to $114.10 a barrel at 0142 GMT.

U.S. West Texas Intermediate WTI crude futures for July delivery climbed 22 cents, or 0.2%, to $110.55 a barrel.

Following soaring exports, the market was buoyed by the bigger than expected drawdown in US crude inventories in the week to May 20, which led to a bigger-than-expected drawdown in U.S. crude inventories. Analysts said the inventory draw and the prospect of an EU embargo on Russian oil were pushing prices higher, in response to what Moscow calls its special military operation in Ukraine.

The EU ban on Russian oil imports is the main upside driver, according to Commonwealth Bank commodities analyst Vivek Dhar.

On Wednesday, European Council Chairman Charles Michel said he is confident that an agreement can be reached before the council's next meeting on May 30.

Hungary is a stumbling block to the unanimous support needed for EU sanctions. Hungary wants to add more than 750 million euros $800 million to upgrade its refineries and expand a pipeline from Croatia to allow it to switch away from Russian oil.

Even without a formal ban, much less Russian oil is available to the market as buyers and trading houses avoid dealing with crude and fuel suppliers from the country.

ANZ analysts pointed out that cargoes from Baltic ports are able to travel longer distances to Asian refineries, while deliveries to the Netherlands and France have all but stopped.

A projected increase in oil output to a record high of 5.2 million barrels per day bpd in the Permian Basin of the United States is unlikely to fill the 2 million to 3 million barrels per day gap from lost Russian supply, according to CBA's Dhar.

This week, the rise in oil markets has been tempered by strict COVID 19 lockdowns, rising concerns about falling fuel demand in China, the world's biggest oil importer, and worries about inflation leading to slower global growth.