Oil jumps 4% due to tight supply and prospects of new Russian sanctions

Workers walk as oil pumps appear in the background at the Ouzin oil and gas field in Kazakhstan’s Mangistau region, November 13, 2021. REUTERS/Pavel Mikheev

NEW YORK (Reuters) – Oil prices rose nearly 4 percent on Wednesday on tight supplies as US crude inventories fell further and prospects of new Western sanctions against Russia increased even as Moscow and Kiev held peace talks.

Brent crude futures rose $4.17, or 3.8 percent, to $114.40 a barrel by 10:57 am ET (1457 GMT), while US West Texas Intermediate crude rose $3.97, or 3.8 percent, to $108.21.

Government data showed that US crude stocks fell for the second week in a row, falling by 3.4 million barrels last week, larger than expected, reducing stocks in the world’s largest consumer to 410 million barrels, the lowest level since September 2018. And

“US crude oil inventories showed another drawdown despite higher production, however another strong one was released from the Strategic Petroleum Reserve (SPR) in commercial stocks,” said Matt Smith, senior oil analyst at Kpler, noting that the crude oil drawdown It was driven by rising refining activity.

After six weeks of stabilization, US crude production rose by 100,000 barrels per day last week to 11.7 million barrels per day, while stocks in the Strategic Petroleum Reserve fell to their lowest levels since May 2002, and the use of Gulf Coast refineries rose to its highest level since January 2020.

The market saw sharp selling in the previous session after Russia promised to reduce military operations around Kyiv, but reports of attacks persisted. Read more

The recovery in crude oil prices on Wednesday “suggests that the oil market, at least, has a strong degree of skepticism about any ‘progress’ (in the peace talks),” Commonwealth Bank analyst Tobin Gorey said in a note.

The United States and its allies are planning new sanctions on more sectors of the Russian economy considered critical to its continued invasion of Ukraine, including its military supply chains. Read more

“We will see an additional 1 million barrels per day of Russian production at risk if relations with Europe worsen and an oil embargo is imposed, although we still see that as unlikely,” consultancy JBC Energy said in a note.

Russia’s top legislator warned the European Union on Wednesday that exports of oil, grains, minerals, fertilizers, coal and timber could soon be priced in rubles, having previously demanded that “unfriendly” countries pay rubles for gas. Read more

In response, Germany launched an emergency plan to manage gas supplies in Europe’s largest economy on Wednesday. Read more

Keeping the market tight, several sources close to the group said, major oil producers are likely to stick to the target increase in production of about 432,000 barrels per day when OPEC + – the Organization of the Petroleum Exporting Countries and allies including Russia – meet on Thursday. Read more

However, oil prices are facing pressures from weak demand in China due to tight mobility restrictions and COVID-19-related lockdowns in multiple cities including the financial hub of Shanghai. Read more

In order to stabilize the economy, China will implement its policies as soon as possible, state media CCTV quoted a cabinet meeting on Wednesday. Read more

Additional reporting by Noah Browning in London, Sonali Paul in Melbourne and Muyu Shu in Beijing. Editing by Margarita Choi and Elaine Hardcastle

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