(Bloomberg) -- Oil headed for its first back-to-back weekly gain since early March on signs the market is tightening as the European Union moved toward banning Russian crude and the U.S. said it would refill its strategic reserves.
West Texas Intermediate rose toward $110 a barrel, up 5% this week. The EU intends to phase in a ban on Russian crude by year-end to punish Moscow for its invasion of Ukraine. The group has proposed a revision to the ban that would give Hungary and Slovakia an extra year to comply, people familiar with the matter said on Friday.
Approval requires support from all 27 states, and Hungary Prime Minister Viktor Orban said that he doesn't want to veto the plan, while outlining his concerns and requesting a five-year exemption.
The U.S. government said Thursday that it would begin a buyback of crude to replenish the nation's reserve. While the process could begin in the fall, the actual deliveries won't take place until sometime in the future.
Oil has rallied more than 40% this year as the invasion of Ukraine upended commodity markets. This week's advance -- the third in the past four -- has come despite lingering concerns that lockdowns in China to combat Covid-19 outbreaks are hurting consumption. While the Organization of Petroleum Exporting Countries and its allies did announce another modest increase in supply, there's doubt the alliance will be able to deliver the full volume.
“The looming EU embargo on Russian oil has the makings of an acute supply squeeze,” said Stephen Brennock an analyst at brokerage PVM Oil Associates Ltd. “There is now growing anxiety that Europe might run out of diesel.”
Product markets have also shown signs of strength this week, especially in the U.S., where nationwide holdings of gasoline and diesel have dropped. Gasoline futures are trading near a record after a weekly gain of almost 6%.
Meanwhile PetroChina Co. said it isn't seeking any discounted Russian oil and gas and is only purchasing fuel from the country through its existing contracts, company executives said Friday.
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