The price of Brent crude, the international standard, has leapt to $123.80 a barrel on news that the European Union has reached a deal to ban imports of Russian oil. This development is sending oil stocks sharply higher today.
Shares of leading oil producers such as Chevron (NYSE:CVX), Exxon Mobil (NYSE:XOM), Occidental Petroleum (NYSE:OXY), Devon Energy (NYSE:DVN), Imperial Petroleum (NASDAQ:IMPP) and others, are up more than 1% today on news that Europe is proceeding to ban Russian oil imports and as prices for crude climb higher.
West Texas Intermediate crude oil, the U.S. benchmark, is now trading at $118.20 a barrel.
What Happened With Oil Stocks
Over the weekend, the European Union announced an agreement to ban Russian oil. This comes nearly 100 days after Russia first invaded Ukraine.
In announcing the ban on Russian crude, European Council President Charles Michel said “This immediately covers more than two-thirds of oil imports from Russia, cutting a huge source of financing for its war machine.”
Agreement to ban export of Russian oil to the EU.
This immediately covers more than 2/3 of oil imports from Russia, cutting a huge source of financing for its war machine.
Maximum pressure on Russia to end the war.
— Charles Michel (@eucopresident) May 30, 2022
The agreement does come with a few compromises. For instance, the European Union is granting exemptions to shipments through the Druzhba pipeline to help countries like Hungary. Officials still have to agree on the technical details and all 27 E.U. nations must adopt the sanctions.
Why It Matters
Oil shipped by sea accounts for about two-thirds of Russian oil imports to Europe, and the embargo could cost Russia up to $10 billion a year in lost revenue. Russia shipped about 720,000 barrels a day of crude oil to European refineries through its main pipeline last year. It shipped an average of 1.57 million barrels a day from Baltic, Black Sea and Arctic ports.
Russia, which harshly criticized the European ban, is currently selling its crude oil at a deep discount to Asian countries, where it’s trading at about $34 per barrel.
News of the European ban on Russian crude has sent oil prices sharply higher, and that benefits major oil companies that explore, extract and refine the commodity. Year to date, oil stocks have been the best performing worldwide with the S&P 500 Energy Index up 58%.
Some stocks of oil companies, such as Occidental Petroleum, have risen more than 100%.
Oil stocks continue to rally higher as prices for crude gain ground on news that Europe is proceeding to ban Russian energy imports. Already significantly higher on the year, stocks of oil companies appear to have further to run with global energy markets roiled by the ongoing war in Ukraine and tightening supplies in most industrialized nations.
As the broader stock market continues to sink, oil stocks are proving to be a lone bright spot for investors seeking near-term gains.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.