• Oil gained on Tuesday as easing Covid restrictions in Shanghai alleviated some concern about demand.
  • Sanctions on Russia and its intensifying war on Ukraine could severely threaten supply, OPEC said.
  • Brent crude and WTI futures gained 5%, regaining the previous day's losses.

Oil rose sharply on Tuesday, regaining much of the previous day's lost ground, after China said it would ease some of the restrictions on movement in Shanghai, while investors assessed the prospect of supply disruption from the escalating Russia-Ukraine war.

A COVID outbreak in China in recent weeks had prompted strict lockdowns in many major cities, including Shanghai. But authorities relented somewhat on Monday and loosened some restrictions, which gave way to a degree of relief among investors in the region about the demand outlook in the world's largest energy importer.

"The easing of Shanghai lockdowns today has prompted dip-buying by Asian buyers, hopeful the worst is past now for China," wrote Jeffrey Haley, Senior Market Analyst, Asia Pacific, at OANDA.

Brent crude fell by as much as 5.2% on Monday to a low of $97.57 a barrel, but by Tuesday had recouped that lost ground. Brent was last up 5.3% on the day at $104.12 a barrel, while WTI crude oil was up 5.8% at $99.75 a barrel.

Russia's invasion of Ukraine and the prospect of sanctions on exports to some of its major consumers in Europe has fed fears that millions of barrels of oil a day could be lost from the global market which would, in turn, exacerbate already high energy prices and inflation.

The Organization of the Petroleum Exporting Countries (OPEC) told the European Union this week that it would be "nearly impossible" to replace Russian oil if supplies are cut off due to sanctions, according to Reuters. It said more than 7 million barrels a day of oil and other liquid exports could be lost.

"The oil market is still vulnerable to a major shock if Russian energy is sanctioned, and that risk remains on the table," wrote Edward Moya, a senior market analyst with OANDA.

OPEC+ said last month that it would increase output by about 432,000 barrels per day in May to meet demand recovery as the Covid pandemic eases. The group has said repeatedly it does not set supply policy according to politics, a sign traders say suggests it may not raise crude output to make up for losses from sanctions.

A number of Western nations, including the United States have committed to releasing up to 240 million barrels of oil over the next six months from emergency stockpiles to alleviate some of the upward pressure on prices.

The EU , which relies on Russia for around 25% of its oil imports, is trying to wean itself off Russian energy and considering an embargo on the country's oil. Russia is the world's third-largest oil producer and second-largest crude oil exporter at about 5 million barrels a day.

Oil prices are already up around 30% year-to-date, as traders have voluntarily boycotted cargoes of Russian oil and a number of countries including the US and UK have said they will ban imports.

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