Oil prices extend gains with falling supplies in focus

Oil prices extended gains on Wednesday after Moscow said peace talks with Ukraine had reached a dead end, feeding worries about tight supplies even after U.S. crude stocks rose by more than 9 million barrels.

Brent crude was up $1.94, or 1.9%, to $106.58 a barrel by 11:03 a.m. (1508 GMT) U.S. West Texas Intermediate (WTI) crude futures gained $1.57, or 1.6%, to $102.17. In the previous session, both benchmarks climbed more than 6%.

On Tuesday, Russian President Vladimir Putin on Tuesday said Ukraine derailed peace talks and said Moscow would continue what it calls a “special military operation” to disarm its neighbour.

The developments reinforced the view that “the Ukraine-Russia situation will not be de-escalating any time soon,” said OANDA senior market analyst Jeffrey Halley. “The downside for oil prices is limited.”

On Monday, Russian oil and gas condensate production fell below 10 million barrels per day (BPD), the lowest since July 2020.

The International Energy Agency (IEA) on Tuesday said it expected Russian oil output losses to average 1.5 million BPD in April, with losses growing to close to 3 million BPD from May.

Other countries are unlikely to replace the Russian supply losses entirely or swiftly. The White House is releasing 180 million barrels from U.S. reserves over six months, part of a release of 240 million barrels from members of the International Energy Agency.

U.S. production is expected to keep rising from 11.8 million BPD now to about 12 million in 2022. Exports of refined products reached an all-time record, as heavy overseas demand caused U.S. stockpiles to fall.

“These inventories of refined products keep dwindling here,” said John Kilduff, partner at Again Capital in New York. “The drawdown in refined products is sizable enough that it gives (the market) a bullish tone.”

The Organization of the Petroleum Exporting Countries (OPEC), has said it would be impossible to replace expected supply losses from Russia and it would not pump more crude.

Reports this week of a partial easing of some of China’s tight COVID-19 lockdown measures also underpinned oil prices on the basis they could boost demand.

However, weak data from China and Japan limited the oil price rise.

China’s crude oil imports slipped 14% from a year earlier, extending a two-month slide, as strict coronavirus restrictions hit demand in the world’s top crude importer, while Japan reported its biggest monthly fall in core machinery orders in nearly two years.

OPEC on Tuesday cut its forecast for 2022 global oil demand growth, citing the impact of Russia’s invasion of Ukraine, rising inflation, and the resurgence of the Omicron coronavirus variant in China. OPEC expects global demand to grow by 3.67 million BPD in 2022, down 480,000 BPD from its previous forecast.