Oil steadies, but remains below $120 a barrel in volatile trade as EU remains divided on a potential ban on Russia’s energy exports

• Brent crude oil fell back under $120 a barrel on Tuesday, despite supply concerns persisting.
• EU member states are yet to reach an agreement on sanctions on Russian energy exports.
• Houthi rebels attacked Saudi Arabian oil facilities over the weekend, adding to supply woes.

Oil whipsawed on Tuesday, falling by as much as 2% as European leaders were still divided over whether to impose sanctions on Russian energy exports, before the price pared those losses as attacks on Saudi Arabian oil facilities over the weekend fed into concerns about the supply outlook. 

Brent crude futures were last up 0.2% at $115.84 a barrel by late morning in Europe, having fallen to a session low of $112.66 earlier, while West Texas Intermediate was down 0.1% at around $109.92 a barrel.

EU member states met on Monday and several ministers mooted a potential sanction on Russia energy exports, while the European Union foreign policy chief, Josep Borrell, branded the atrocities in the port city of Mariupol as “a massive war crime.”

“Looking at the extent of the destruction in Ukraine right now, it’s very hard to make the case that we shouldn’t be moving in on the energy sector, particularly oil and coal,” Irish Foreign Minister Simon Coveney said before EU talks on Monday. 

However, EU ministers remain split on whether or not to follow the US lead and impose sanctions on Russian energy exports. Germany and other states are highly dependent on Russia’s energy sector, as such the price of oil retreated below $115 a barrel on Tuesday.  

“Oil also spiked higher in an emotional session overnight after stories circulated that the EU was considering a full oil embargo on Russia. Unsurprisingly, there was no agreement on that which is completely logical, as large parts of the EU cannot just flick a switch and substitute Russian energy,” said Jeffrey Halley, Senior Markets Analyst at Oanda. 

“It is clear that tensions are rising once again as no progress towards a Ukraine settlement is made. I still believe that Brent crude and WTI will continue to trade in a roughly $100.00 to $120 range, however. Even the most tenuously positive Ukraine news should see both contracts quickly back below $110.00 a barrel,” Halley said.

Elsewhere, in the Middle East tensions rose, as Iranian-backed Houthi rebels attacked oil facilities across Saudi Arabia, temporarily affecting production. Riyadh subsequently stated Saudi would not be responsible for any hit to global supply should these attacks persist.

Monday’s comments by the Federal Reserve Chair Jerome Powell also affected commodities more generally via a stronger dollar, after the head of the central bank indicated policymakers could raise rates more quickly to tackle inflation.

The combination of a hawkish Fed and a stronger dollar makes crude oil more expensive for other currency holders and can also weigh on risk appetite.