Oil climbs above $121 a barrel as China eases restrictions and EU complies

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Oil prices hit a two-month high of $121 a barrel as China eased COVID-19 restrictions and traders believed the European Union would finally reach a deal to ban imports of Russian oil .

Oil prices soared above $121 a barrel on Monday, hitting a two-month high as China eased COVID-19 restrictions and traders believed the European Union would finally reach a deal to ban imports of Russian oil. Business activity was reduced due to a US holiday. Brent crude futures for July, which expires Tuesday, settled down $2.24, or 1.9%, at $121.67 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose $1.99, or 1.7%, to $117.06 a barrel at 1803 GMT, extending strong gains made last week.

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“One of the reasons given for this is the imminent lifting of coronavirus restrictions in Shanghai, which raises hopes that demand for oil will pick up in China,” Commerzbank analysts said in a note to clients.

Shanghai announced the end of its two-month COVID-19 lockdown and will allow the vast majority of residents of China’s largest city to leave their homes and drive their cars from Wednesday.

Meanwhile, the EU is meeting on Monday and Tuesday to discuss a sixth sanctions package against Russia for its invasion of Ukraine, which Moscow calls a “special military operation”.

EU countries failed to agree on a ban on Russian oil imports despite last-minute haggling ahead of the start of the summit in Brussels

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“Europe has been trading on this for almost a month, but the market is increasingly viewing (additional sanctions) as a risk,” said Daniel Ghali, senior commodities strategist at TD Securities in Toronto.

EU countries failed to agree on an import ban on Russian oil despite last-minute haggling ahead of the start of the summit in Brussels. But the leaders of the 27 EU countries will accept an oil embargo in principle, draft conclusions from their summit showed, while leaving the practical details and difficult decisions for later.

Any further bans on Russian oil would tighten an already tight crude market for supply amid growing demand for gasoline, diesel and jet fuel ahead of the peak summer season in the United States and Europe.

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Underscoring the tightness of the market, the Organization of the Petroleum Exporting Countries and its allies, including Russia, a group dubbed OPEC+, are expected to push back on Western calls for accelerated output increases at their meeting on Thursday.

They will stick to existing plans to increase their July production target by 432,000 barrels per day, six OPEC+ sources told Reuters.

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