The oil price soared to a two-month high after European Union nations agreed on a partial ban on oil imports from Russia following its invasion of Ukraine.
Tuesday's price surge piles more pressure on a tighter market already strained for supply amid rising demand.
Brent (BZ=F), the international benchmark, breached the psychological $124 barrier, up 3.9% to $124.03, the highest since 9 March. West Texas crude (CL=F) was trading 3.5% higher to $119.05 at the time of writing.
EU leaders agreed in principle to cut 90% of oil imports from the Kremlin by the end of 2022, resolving a deadlock after Hungary, a major user of Russian oil, held up talks that have been underway for weeks.
The embargo is part of the bloc's sixth sanctions package on Moscow since the start of the Ukraine war in February, and around 36% of the EU’s oil imports come from Russia.
"The European Council agrees that the sixth package of sanctions against Russia will cover crude oil, as well as petroleum products, delivered from Russia into Member States, with a temporary exception for crude oil delivered by pipeline," a statement said on Tuesday.
It added that in case of "sudden interruptions" of supply, "emergency measures" will be introduced to ensure security of supply.
The temporary exception covers the remaining oil from Russia that is not yet banned, European Commission president Ursula von der Leyen said in a press conference.
"We have agreed that the Council will revert to the topic as soon as possible in one way or the other. So this is a topic where we will come back to and where we will still have to work on, but this is a big step forward, what we did today," she said, referring to the temporary exemption.
Von der Leyen explained that the temporary exemption was granted so that Hungary, the Czech Republic and Slovakia, who are all connected to the southern leg of the pipeline, have access which they cannot replace easily.
Tonight #EUCO agreed a sixth package of sanctions.
It will allow a ban on oil imports from #Russia.
The sanctions will immediately impact 75% of Russian oil imports. And by the end of the year, 90% of the Russian oil imported in Europe will be banned. pic.twitter.com/uVoVI519v8
— Charles Michel (@eucopresident) May 30, 2022
In March, crude prices surged to their highest level since 2008 and have risen more than 55% so far this year.
"The continued rise in oil prices is likely to act as a drag on economic activity, after EU leaders agreed a deal to block 90% of oil imports by the end of this year," said Michael Hewson, chief market analyst at CMC Markets.
Oil prices have also been driven up by the lifting of pandemic restrictions in the world's biggest importer, China.
The country, eased its zero-COVID measures after nearly three months of lockdowns. The stringent lockdown saw Chinese crude demand weaken in recent months.
It comes after International Energy Agency head Fatih Birol cautioned further oil price rises could be on the horizon if demand in China picks up.
Speaking at Davos last week, Birol said: "I very much hope that the increase coming from [the] US, Brazil and Canada this year, [will] be accompanied by the increase coming from the key producers in Middle East and elsewhere.
"Otherwise, we have only one hope that we don’t have big trouble in the oil markets in summer, which is hoping..that the Chinese demand remains very weak."
Shanghai authorities said businesses in the financial hub could start to reopen without having to apply for approval from Wednesday.
In the capital Beijing, major shopping centres, libraries, museums, theatres and gyms were also allowed to reopen on Sunday. However, limits on the number of people will remain in place across districts that have seen no community COVID cases for seven consecutive days.