Higher Even Though Potential For EU Embargo Fades

WTI is +$1.40 and Brent +$1.60, printing ~$110.70 and ~$117.10 respectively. Both benchmarks have backed away from the week’s best levels, as earlier expectations of imminent EU sanctions on Russian energy exports have been pared back in the face of internal EU opposition led by Germany and Hungary.

• Elsewhere, news of the (partially Russian) Caspian Pipeline Consortium (CPC) shutting ~1mn bpd of crude production for up to two months due to storm damage saw little reaction from major crude benchmarks. A note that while crude exports from the CPC do not come under recent U.S. sanctions on Russian oil, CPC crude already faces difficulties in finding buyers amidst well-documented concerns re: buying Russian-linked crude, with some crude from the CPC pipeline mixing with Russian grades before being loaded from the Russian port of Novorossiysk.
• Looking to the supply dynamics for oil, participants continue to debate the likelihood and pace of demand destruction for crude in the face of elevated prices. While retail gasoline prices have hit record highs in many large economies (e.g. the U.S. and Japan), several governments have been raising related subsidies and slashing fuel taxes (such as in New Zealand, South Korea, and some U.S. states), as they look to support demand in the near-term.
• Weekly U.S. API inventory crossed late on Tuesday, with reports pointing to a surprise drawdown in crude stocks, alongside declines in gasoline and distillate stockpiles, while there was a build in Cushing hub inventories. Looking ahead to EIA data due later on Wednesday (1430 GMT), WSJ median estimates point to virtually unchanged headline crude inventories, with drawdowns in gasoline and distillates expected once again.