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Hungary digs heels in over EU embargo on Russian oil

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© Reuters. Hungary’s Prime Minister Viktor Orban and European Commission President Ursula von der Leyen talk during their meeting in Budapest, Hungary, May 9, 2022. Hungarian Prime Minister’s Press Office/Viven Cher Benko/Handout via REUTERS

By Gabriela Baczynska

BRUSSELS (Reuters) – The European Union’s executive is looking to support Hungary in beefing up the eastern European state’s oil pipelines, storage and refining capacity, a spokesman said on Tuesday, as Budapest dug its heels in over a Russian oil embargo.

Most other EU countries support banning Russian oil under a new sixth package of sanctions designed to punish Moscow for waging war on Ukraine. Unanimity is required for such a decision, however, with Hungary the most vocal critic.

Over dinner in Budapest on Monday, Hungarian Prime Minister Viktor Orban and European Commission President Ursula von der Leyen discussed investment in upgrading Hungarian oil infrastructure, a spokesman for the latter said on Tuesday.

“What is extremely important… is that we maintain unity of the European Union when it comes to sanctions against Russia, this is a collective effort,” the spokesman, Eric Mamer, told a news conference.

“We hope the European Union can adopt the sanctions as quickly as possible.”

Von der Leyen said more work was needed to reach agreement and that she would host a discussion about regional cooperation on oil infrastructure.

Mamer refused to say when that call would take place, adding that preparatory technical work was going on.

French President Emmanuel Macron also talked to Orban, the Elysee said on Tuesday, and France’s EU minister said separately an agreement was possible this week. Member states’ EU envoys are due to meet on the matter in Brussels on Wednesday.

WORK NEEDED

But comments from Budapest did not suggest an imminent breakthrough, with Foreign Minister Peter Szijjarto saying the leaders’ dinner marked “a small step forward” but that a lot more work was needed.

“The passing of this sanctions package would ruin our energy security,” he said. “It would be impossible to purchase enough oil to keep Hungary and the Hungarian economy working.”

“As long as the European Commission is not offering solutions to these problems, Hungary, obviously, cannot support this sanctions package as… an atomic bomb dropped on the Hungarian economy.”

Orban said last week Hungary needed “vast investment” to modernise the country’s energy system.

Some in EU hub Brussels made the link with the Commission, which criticises Orban for undercutting the rule of law, blocking Hungary’s access to billions of euros intended to help economic recovery from the COVID-19 pandemic.

The Commission has also recently launched an unprecedented sanction, the so-called conditionality mechanism, over Hungary’s persistently sluggish anti-corruption measures. It could cost Hungary more EU funds, an important driver of its development.

“What Viktor Orban’s government is clearly looking for is extra money, a slow-walk on the conditionality mechanism, or both,” said think-tank Eurointelligence.

Others worried Orban – who has cultivated close personal ties with Russian President Vladimir Putin – was seeking to ingratiate himself with Moscow and could drag the discussion out to the next summit of EU national leaders due on May 30.

“That would already be a win for Orban,” said one EU diplomat, unhappy about the disagreement exposing divisions within the bloc and providing fuel to those criticising it for inefficiency.

Commodities

Exclusive-Petrobras warned of diesel shortages before CEO ouster

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2/2

© Reuters. A worker paints a tank of Brazil’s state-run Petrobras oil company in Brasilia, Brazil September 30, 2015. REUTERS/Ueslei Marcelino/File Photo

2/2

By Sabrina Valle

(Reuters) -Brazil’s Petrobras alerted the government last week that diesel pumps could run dry this year if the oil company does not sell fuels at market prices, according to four people close to discussions and an internal presentation seen by Reuters.

Just days later, President Jair Bolsonaro fired the chief executive of Petroleo Brasileiro SA, as the state-controlled company is formally known.

Bolsonaro’s chief of staff said the president is “anguished” by rising fuel prices and the pricing policy at Petrobras needs to be more aligned with the government’s thinking.

As Brazil enters a crucial window to secure diesel supplies, Petrobras management warned last week that the firm and other importers would struggle to secure diesel amid the most severe shortage of the fuel in 14 years, the sources said.

Analysts, private importers and officials at oil regulator ANP have echoed those concerns, said people familiar with the talks, who requested anonymity to discuss the politically sensitive matter.

The Petrobras presentation flagged the risk of shortage in the third quarter, when diesel demand surges seasonally in both the United States and Brazil, a major grains exporter expected to start shipping a bumper corn crop in August.

“If there is no signal of market prices ahead, there is material risk of a diesel shortage during the peak of demand during the harvest season, affecting Brazil’s GDP,” Petrobras said in the presentation titled “Fuels: challenges and solutions” and dated May 2022.

Petrobras did not respond to a request for comment.

Diesel supply has become a global concern since sanctions against Russia reshaped fuel trade and sent international inventories to historic lows. Importing countries are sizing up the risk of both rising costs and supply running short, as the industry shuts refineries for repairs or to cut carbon emissions.

Concerns in Brazil about diesel imports in the second half of the year rose after U.S. Gulf refiners, its major suppliers, started redirecting cargoes to Europe, two of the sources said.

“Global diesel inventories are far below the historic average,” Petrobras said in the presentation shared with the Ministry of Mines and Energy. “Petrobras alone cannot solve the global rise of energy prices.”

Energy Minister Adolfo Sachsida on Friday called oil analysts to ask about diesel shortages in the second half of the year, said a person directly involved in the matter. The ministry did not respond to a comment request.

“If Petrobras stops selling diesel at international prices for more than two or three weeks, there is a chance pumps will run dry,” a top executive from a large diesel producer said.

SUGGESTING SUBSIDIES

Executives at Petrobras, whose bylaws bar it from selling fuel at a loss without compensation, suggested in the presentation that Brazil could cut taxes or otherwise subsidize fuels to consumers, citing the example of several European Union nations.

Fuel subsidies cost Brazil about 7.5 billion reais ($1.6 billion) in 2018, when former President Michel Temer implemented them for a few months to halt a national trucker protest.

The cost of a similar measure this year could surpass 60 billion reais, estimated one of the people close to the discussions.

Russia’s invasion of Ukraine sent crude oil prices to a 14-year high. This month, global shortages led diesel traders to pay a premium of more than $50 per barrel.

At their maximum, Brazilian diesel inventories can cover about a month of national demand. At Petrobras, supplies are at about half capacity, according to two sources.

Brazil books cargoes in June for the August-October harvest season, when most grains reach port via long trucking routes.

The company has begun turning to more distant providers in Western Africa and India, one of the sources said. But while a Gulf diesel cargo takes two to three weeks to arrive in Brazil, a ship from India could take 45-60 days.

“If refineries in the U.S. get damaged during the hurricane season, or anything else contributes to a tighter market, we could be in real trouble,” a Petrobras executive said on condition of anonymity.

($1 = 4.79 reais)

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Commodities

Oil rises as tight supply counters economy fears and China curbs

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© Reuters. FILE PHOTO: A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson

By Alex Lawler

LONDON (Reuters) -Oil rose on Tuesday, recovering earlier losses, as tight global supply and an expected pick-up in fuel demand during the U.S. summer driving season balanced concerns over a possible recession and China’s COVID-19 curbs.

In a step that analysts say will further tighten the market, the European Union is moving closer to agreeing a ban on Russian oil imports. Such an embargo is likely to be agreed “within days”, Germany’s economy minister said on Monday.

Another source of support is U.S. gasoline demand. U.S. Memorial Day weekend travel is expected to be the busiest in two years as more drivers hit the road and shake off coronavirus lockdowns despite high pump prices.

“The oil market remains caught between fears of recession and the consequences of the zero-COVID policy in China on the one hand, and tight supply, especially of oil products,” Commerzbank (ETR:CBKG) analyst Carsten Fritsch said in a report.

Brent crude rose 44 cents, or 0.4%, to $113.86 a barrel by 1110 GMT. U.S. West Texas Intermediate (WTI) crude added 36 cents, or 0.3%, to $110.65.

Oil has surged this year, with Brent crude hitting $139 a barrel in March for its highest since 2008 after Russia’s invasion of Ukraine exacerbated supply concerns.

Even so, worries about threats to the global economy – a main theme of the Davos meeting taking place this week – limited gains and were behind price falls earlier on Tuesday.

“Global economic growth is declining precipitously under the collective impact of rising interest rates, Chinese COVID flare-ups and the European war,” said Tamas Varga of oil broker PVM.

Beijing is stepping up quarantine efforts to end its month-old outbreak while Shanghai’s prolonged lockdown is due to be lifted in a little more than a week.

Weekly U.S. inventory reports will be in focus later for a read on the strength of demand. Analysts expect gasoline and crude inventories to drop. The first report is from the American Petroleum Institute at 2030 GMT. [EIA/S]

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Commodities

Indian oil minister says oil at $110 a barrel not sustainable

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© Reuters. FILE PHOTO: India’s Minister of Petroleum and Natural Gas Hardeep Singh Puri speaks during an interview with Reuters in Abu Dhabi, United Arab Emirates, November 15, 2021. REUTERS/Abdel Hadi Ramahi

DAVOS, Switzerland (Reuters) – India’s Oil Minister Hardeep Singh Puri told the World Economic Forum in Davos on Tuesday that a crude oil price of $110 a barrel was not sustainable, as the world faces an energy price crisis which is contributing to rising global inflation.

Oil prices have surged this year, with Brent crude hitting $139 a barrel in March for its highest price since 2008, after Russia’s invasion of Ukraine exacerbated supply concerns. [O/R]

As countries around the world struggle with the impact of inflation on disposable income, India’s Commerce Minister Piyush Goyal said on the same WEF panel that food inflation in the South Asian country was at a “manageable level”.

Goyal also said that India was producing enough wheat for domestic consumption, as some countries face shortages due to price rises and problems in getting the grain from major producer Ukraine following Russia’s invasion.

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