Oil prices rose more than 5 percent on Wednesday after flows of Russian gas to Europe fell and Russia sanctioned some European gas companies, adding to uncertainty in world energy markets.
Oil and gas prices have risen since Moscow invaded Ukraine in February and the United States and allies subsequently imposed heavy sanctions on Russia. Crude trade has been curtailed, and Russia has threatened to cut off gas supply to Europe, though it has stopped short of that move.
Russian gas flows to Europe via Ukraine fell by a quarter after Kyiv halted use of a major transit route, blaming interference by occupying Russian forces. It was the first time exports via Ukraine have been disrupted since the invasion.
That move raised concerns that similar interruptions could follow even as prices are already soaring. Russia on Wednesday sanctioned 31 companies based in countries that imposed sanctions on Moscow after Russia invaded Ukraine in February.
Brent crude settled up $5.05, or 4.9 percent, to $107.51 a barrel, while U.S. West Texas Intermediate crude climbed $5.95 a barrel to $105.71, a 6 percent increase.
The European Union has threatened a full embargo of Russian oil, though negotiations are continuing. Because of Russia's role as the biggest exporter of crude and fuel, the disruptions - which are expected to worsen - have caused markets to tighten around the world, especially for refined products like diesel.
"Prices are going to continue to move on up especially if the European Union comes to an agreement to phase out Russian oil purchases over the balance of this year," said Andrew Lipow, president of Lipow Oil Associates in Houston.
The EU is still haggling over an embargo on Russian oil, which analysts say would further tighten the market and shift trade flows. The vote needs unanimous support, but it has been delayed as Hungary has dug in its heels in opposition.
The latest figures on U.S. inventories underscored the dynamics pushing prices higher. Even though U.S. crude stocks grew by more than 8 million barrels - largely due to another release of strategic reserves - gasoline stocks were down by 3.6 million barrels and stocks of distillates fell also.
Refining capacity has dwindled in the United States and the nation has ramped up exports to meet demand from buyers overseas. So far in 2022, the United States is exporting, on net, roughly 4 million barrels of fuel daily.
"The 90 percent utilization rate numbers aren’t what they used to be because overall capacity is down," said Tony Headrick, energy market analyst at CHS Hedging. "We are seeing refiners not able to keep up with demand for gasoline."
The price of crude has surged in 2022 as Russia's invasion of Ukraine added to supply concerns, with Brent reaching $139, the highest since 2008, in March. Worries about growth caused by China's COVID curbs and U.S. interest rate hikes have prompted this week's slump.
(Additional reporting by Alex Lawler in London, Laura Sanicola and Arathy Somasekhar in New York; editing by Jason Neely, Louise Heavens, Tomasz Janowski and David Gregorio)
(Edited by : Asmita Pant)