Oil bounces on renewed uncertainty about supply

London — Oil prices bounced from a sharp drop in the previous session on Thursday after the United Arab Emirates backtracked on statements saying that Opec and its allies might increase output to help to plug the gap in exports from Russia.

In a volatile market, Brent crude futures were up $5.43, or 4.9%, at $116.57 a barrel by 10.42am GMT after trading in an $8 range. The benchmark contract slumped 13% in the previous session, its biggest daily drop in percentage terms for about two years.

West Texas Intermediate was up $4.49, or 4.1%, at $113.19 after trading in a $7 range. The contract had tumbled 12% in the previous session, the biggest daily decline since November.

PVM oil market analyst Tamas Varga called Wednesday’s slump a “temporary correction”.

Uncertainty over supply to replace crude from Russia has led to forecasts for oil prices of as high as $200 a barrel.

While oil from the world’s second-largest exporter is being shunned over its invasion of Ukraine, comments from the UAE energy minister and the its ambassador to Washington sent conflicting signals.

UAE Energy Minister Suhail al-Mazrouei said on Twitter that his country was committed to the agreement by Opec and allies including Russia to ramp up oil supply by only 400,000 barrels a day monthly after sharp cuts in 2020.

Prices slumped just hours earlier after comments from the UAE’s ambassador to Washington that his country would encourage Opec to consider higher output to fill the supply gap created by sanctions on Russia”.

While the UAE and Saudi Arabia have spare capacity, some other Opec+ producers are struggling to meet their output targets because of a lack of investment in infrastructure over the past few years.

Talks between Russia and Ukraine’s foreign ministers scheduled for later on  Thursday in Turkey also gave the market reason for pause.

The comments from UAE officials came as the market also took into account moves by the US to ease sanctions on Venezuelan oil and efforts to seal a nuclear deal with Iran, which could lead to increased oil supply.

Further supply could also come from stockpile releases co-ordinated by the International Energy Agency and growing US output.

“With some goodwill, co-ordination and luck, the supply shock can greatly be mitigated but probably not neutralised,” Varga said.

Meanwhile, US crude oil and fuel stockpiles fell last week, adding to worries about already tight global supplies.

Crude inventories fell by 1.9-million barrels in the week to March 4 to 411.6-million barrels. US crude stocks in the Strategic Petroleum Reserve fell to 577.5-million barrels, the lowest since July 2002.

Reuters