Oil Updates — Crude climbs; US drillers add oil and gas rigs; EU proposes changes to planned Russian embargo

RIYADH: Oil prices rose nearly 1.5 percent on Friday, posting a second straight weekly increase as impending EU sanctions on Russian oil raised the prospect of tighter supply and had traders shrugging off worries about global economic growth.

Brent futures rose $1.49, or 1.3 percent, to settle at $112.39 per barrel. US West Texas Intermediate crude climbed $1.51, or 1.4 percent, to end at $109.77 a barrel.

US drillers add oil and gas rigs for the seventh week in a row — Baker Hughes

US energy firms last week added oil and natural gas rigs for a seventh week in a row amid high prices and prodding by the government, although most shale producers were prioritizing shareholder returns over new spending on production.

The oil and gas rig count, an early indicator of future output, rose by seven to 705 in the week to May 6, its highest since March 2020, energy services firm Baker Hughes Co. said in its closely followed report on Friday.

Baker Hughes said that puts the total rig count up 257, or 57 percent, over this time last year.

US oil rigs rose by five to 557 this week, their highest since April 2020, while gas rigs gained two to 146, their highest since September 2019.

Since Moscow invaded Ukraine on Feb. 24, the US government has urged drillers to produce more oil and gas to reduce domestic prices and help allies break their dependence on Russian energy.

Even though the rig count has climbed for a record 21 months in a row through April, weekly increases have mostly been in single digits and oil production is still far below pre-pandemic record levels.

US crude production, which hit a record 12.3 million barrels per day in 2019, was set to rise from 11.2 million bpd in 2021 to 12.0 million bpd in 2022 and 13.0 million bpd in 2023, according to federal energy data. 

Top US shale producers this week reported blockbuster first-quarter profits and most poured cash into higher dividends and share buybacks as oil prices churned along at the highest levels in years.

But with oil prices up about 47 percent so far this year to about $110 a barrel, after soaring 55 percent in 2021, a growing number of energy firms said they plan to raise capital spending for the second year in a row in 2022.

US financial services firm Cowen & Co. said the independent exploration and production companies it tracks plan to boost spending by about 29 percent in 2022 versus 2021 after increasing spending by about 4 percent in 2021 versus 2020.

That follows a drop in capital expenditures of roughly 48 percent in 2020 and 12 percent in 2019.

US investment bank Piper Sandler forecast the US total rig count would rise to an average of 684 in 2022 and 783 in 2023. That compares with an average of 478 in 2021, according to Baker Hughes.

The annual average rig count peaked at 1,919 in 2012 and hit a record low of 433 in 2020, according to Baker Hughes data going back to 1988.

EU tweaks Russia oil sanctions plan: sources

The EU proposed changes to its planned embargo on Russian oil to give Hungary, Slovakia and the Czech Republic more time to shift their energy supplies, EU sources said, although failed to reach a breakthrough on May 6.

The EU executive set out the embargo this week as part of its toughest-yet package of sanctions against Russia over the conflict in Ukraine. But Hungary and other EU member states said they were worried about the impact on their own economies. 

The tweaked proposal — which EU envoys discussed on May 6 morning without reaching an agreement — would give the three countries help to upgrade their refineries to process oil from elsewhere and delay their exit from Russian oil to 2024, the sources said.

The initial proposal called for an end to EU imports of Russian crude and oil products by the end of this year.

There would also be a three-month transition before banning EU shipping services from transporting Russian oil, instead of the initial one month — to address concerns raised by Greece, Malta and Cyprus about their shipping companies, one of the sources added. 

Diplomats said talks were complex but many expressed confidence all 27 EU governments could agree before next week.

One said the Commission was in talks on Friday afternoon to find a compromise with Budapest and possibly Bratislava.

“I don’t think we’ll see a breakthrough today, more likely at the weekend,” the diplomat said.

Under the original proposal, most EU countries had to stop buying Russian crude oil six months after the adoption of the measures, and halt imports of refined oil products from Russia by the end of the year. Hungary and Slovakia were initially given until the end of 2023 to adapt.

Under the changes, Hungary and Slovakia would be able to buy Russian oil from pipelines until the end of 2024, and the Czech Republic could continue until June 2024, if it does not get oil via a pipeline from southern Europe earlier, the sources said.

Bulgaria had also asked for exemptions, if others obtained them, but was not offered concessions on deadlines, “because they don’t have a real point,” one official said. The other three countries that were granted more leeway “have an objective problem,” the official added.

One of the sources said the extended deadlines were calculated on the likely construction times for pipeline upgrades. The official said Hungary and Slovakia accounted for only 6 percent of the EU’s oil imports from Russia, and the exemptions would not change the impact of the ban on the Russian economy.

Top EU diplomat Josep Borrell said on Friday he would call an extraordinary meeting of EU foreign affairs ministers next week if no deal was reached by the weekend. 

Ukraine calls for complete Russian embargo

Meanwhile, Ukrainian Finance Minister Serhiy Marchenko called on May 6 for a complete international embargo on Russian oil and gas over Moscow’s invasion of Ukraine.

Marchenko told an online briefing that Ukraine was struggling to balance its budget after 10 weeks of war and said that, as finance minister, he could not be satisfied with the speed at which financial assistance was arriving from abroad.

Referring to what he called the “insufficiency of the sanctions that have been introduced,” he said the high price of oil and natural gas meant Moscow had a budget surplus and “they feel quite comfortable.”

“The main issue is a complete embargo on the purchase of gas and oil from the Russian Federation. This is something that needs to be worked on and that the Ukrainian authorities are actively working on,” he said. “This will make it possible to remove the possibility of financing the war.”

(With inputs from Reuters)