Crude oil prices closed higher on Friday on hopes that Hungary can use Russian crude oil after Hungary’s Prime Minister, Mr Viktor Orban, lobbied US President Donald Trump.
Brent crude futures settled at $63.63 a barrel after it chalked up 25 cents or 0.39 per cent and the US West Texas Intermediate (WTI) crude finished at $59.75 a barrel, up 32 cents or 0.54 per cent.
The US is looking at exempting Hungary from sanctions targeting Russian oil. This move affects one of the levers that the US still maintains over Russia’s energy exports, while signalling flexibility toward an ally that has long played both sides.
The exemption talk comes just as Ukraine’s President Volodymyr Zelenskyy vowed to halt Russian oil shipments to Hungary through the Druzhba pipeline, saying the flow “will disappear from Europe” as the country moves to stop Russia’s war financing via energy exports.
Hungary has maintained its reliance on Russian energy since the start of the 2022 conflict in Ukraine, prompting criticism from several European Union and NATO allies. The country, which shares its northeastern border with Ukraine, currently relies on Russian crude for about 86 per cent of its oil supply, and its refineries were built to handle Russia’s Urals blend.
Hungary’s top refiner MOL, however, says it can already source up to 80 per cent of its crude from non-Russian suppliers, which is a dramatic shift from two years ago when it argued diversification was impossible.
Market analysts warn that if US allows Hungary, it could set a dangerous precedent as others dependent on Russian barrels, such as Slovakia, may demand the same.
Meanwhile, an unexpected US inventory build of 5.2 million barrels reignited oversupply fears this week. The Energy Information Administration said on Wednesday that the US crude stocks rose more than expected on higher imports and reduced refining activity while gasoline (petrol) and distillate inventories declined.
The Organisation of the Petroleum Exporting Countries and its allies (OPEC+) decided on Sunday to increase output slightly in December by 137,000 barrels per day. However, the group also paused further increases for the first quarter of next year, wary of a supply glut.
This prompted Saudi Arabia, the world’s top oil exporter, to announce a sharp reduction to prices for its crude for Asian buyers in December.
Meanwhile, European and US sanctions on Russia and Iran are disrupting supplies to the world’s largest importers, China and India, and thereby providing some support for global markets.