Signals over Russian cap revenge balances worries over demand during US storm

Singapore — Oil prices rose more than $1 on Friday on expectations of a drop in Russian crude supply, which helped offset worries of a hit to US transport fuel demand growth as a looming Arctic storm threatens travel during the holiday season.

Brent crude was up by 66c, or 0.8%, to $81.64 a barrel by 0440 GMT, while US West Texas Intermediate (WTI) crude was at $78.27 a barrel, up 78c, or 1% higher.

They hit highs of $82.17 and $78.77, respectively, earlier in the session. Both contracts were on track to post a second weekly gain, with Brent up 3.3% and WTI up 5.4%.

Russia’s Baltic oil exports could fall 20% in December from the previous month after the EU and Group of Seven nations imposed sanctions and a price cap on Russian crude from December 5, according to traders and Reuters calculations.

Russia may cut oil output 5%-7% in early 2023 as it responds to price caps on its crude and oil products by halting sales to the countries that support them, the RIA news agency cited deputy prime minister Alexander Novak as saying on Friday.

“Crude prices are higher as energy traders focus on Moscow’s response to the price cap put on Russian oil and not so much the thousands of flight cancellations that will disrupt holiday travel,” Oanda analyst Edward Moya said.

More than 4,400 US flights have been cancelled over a two-day period due to the winter storm, coinciding with a holiday travel season that some predict could be the busiest ever.

On Thursday, oil prices on both sides of the Atlantic settled lower as flights were scrapped. The snowstorm could also upend motorists’ plans to travel during Christmas and New Year, curbing petrol consumption. However, heating oil demand could be boosted as the extreme weather is expected to cause power outages.

“As US crude oil inventories fall and winter storms hit the US, cold temperatures are expected to extend southward to Texas, Florida, and the eastern states. Demand for heating oil will soar,” Leon Li, an analyst at CMC Markets, said.

US crude stocks fell more than expected in the week to December 16 as imports dropped sharply, the Energy Information Administration said, with inventories falling by 5.9-million barrels to 418.2-million barrels versus forecasts for a 1.7 million-barrel drop.

However, surging Covid-19 cases in the world’s number two oil consumer China, concerns about further rate hikes globally and recession curbing fuel consumption limited oil’s price gains.

“The oil market’s biggest wild card is China and optimism is still strong that the reopening will continue and eventually lead to more demand,” Oanda’s Moya said.

Reuters