By Noah Browning
LONDON (Reuters) -Oil prices clawed back heavy losses to rise more than 2% on Wednesday on supply tightness and the growing prospect of new Western sanctions against Russia even as signs of progress emerged from peace talks between Moscow and Kyiv.
Brent crude futures were up $2.48, or 2.3%, at $112.71 by 1003 GMT, reversing a 2% loss in the previous session.
U.S. West Texas Intermediate (WTI) crude futures rose $2.72, or 2.6%, to $106.96 a barrel, erasing a 1.6% drop on Tuesday.
“We would see an additional 1 million barrels per day of Russian production at risk if relations with Europe worsen and an oil embargo is put in place, although we still see this as unlikely,” consultancy JBC Energy said in a note.
“The United States and its allies are planning new sanctions on more sectors of Russia’s economy that are critical to sustaining its invasion of Ukraine, including military supply chains.”
The market saw a sharp sell-off in the previous session after Russia promised to scale down military operations around Kyiv, but reports of attacks continued.
Russia’s top lawmaker on Wednesday warned the European Union that oil, grain, metals, fertiliser, coal and timber exports could soon be priced in roubles, having previously demanded that “unfriendly” countries pay in roubles for its gas.
Commonwealth Bank analyst Tobin Gorey said in a note that the price recovery “suggests the oil market, at least, has a strong degree of scepticism about any ‘progress’.”
Market focus has turned to tight supply after the American Petroleum Institute industry group reported crude stocks fell by 3 million barrels in the week ended March 25, triple the decline that 10 analysts polled by Reuters had expected on average. [API/S]
Keeping the market tight, major oil producers are unlikely to boost output above their agreed 400,000 barrels per day when the Organization of the Petroleum Exporting Countries and allies including Russia, together called OPEC+, meet on Thursday, several sources close to the group said.
However, oil prices face pressure from weakening demand in China owing to tightened mobility restrictions and COVID-19-related lockdowns in multiple cities including the financial hub of Shanghai.
(Additional reporting by Sonali Paul in Melbourne and Muyu Xu in BeijingEditing by Jan Harvey and Mark Potter)