Oil surges on supply threats

Oil prices surged about 4% on Friday, boosted by real as well as threatened cuts to supply, although futures posted a second weekly decline as aggressive interest rate hikes and China’s COVID-19 curbs weighed on the demand outlook.

Russian President Vladimir Putin has threatened to halt oil and gas exports to Europe if price caps are imposed and a small cut to OPEC+ oil output plans announced this week also supported prices.

Brent crude rose $3.69, or 4.1%, to settle at $92.84 a barrel. U.S. West Texas Intermediate (WTI) crude rose $3.25, or 3.9% to settle at $86.79 a barrel.

Over the coming months, the West will have to contend with the risk of losing Russian energy supplies and oil prices soaring.

Pressured by worries about a recession and demand, Brent is down sharply from a surge in March close to its all-time high of $147 after Russia invaded Ukraine.

G7 is trying to find ways to limit Russia’s lucrative oil export revenue in the wake of the invasion. A price cap that G7 countries want to impose on Russian oil to punish Moscow should be set at a fair market value minus any risk premium resulting from its invasion of Ukraine, a US Treasury Department official told reporters on Friday.

Despite Friday’s bounce, both crude benchmarks were headed for a weekly drop, with Brent down about 0.2% on the week after at one point hitting its lowest since January. WTI posted a weekly decline of 0.1%.

If the Fed is able to keep the unemployment rate below 5%, it can be aggressive on bringing down inflation but after that tradeoffs will appear, Fed Governor Christopher Waller said on Friday.