Oil rises with supply shortage and possible new sanctions against Russia

Oil prices reversed their heavy losses, rising more than 2 percent on Wednesday as supply tightened and prospects of new Western sanctions against Russia increased, despite signs of progress in peace talks between Moscow and Kiev.

Brent crude futures rose $2.48, or 2.3 percent, to $112.71 a barrel by 1003 GMT, offsetting losses of about two percent in the previous session.

US West Texas Intermediate crude futures rose $2.72, or 2.6 percent, to $106.96 a barrel, after falling 1.6 percent on Tuesday.

“We may see the absence of an additional 1 million barrels of Russian production if relations with Europe deteriorate and an oil embargo is imposed, although we still consider that unlikely to happen,” consultancy JBC Energy said in a note.

The markets witnessed significant selling in the previous session after Russia promised to reduce military operations around Kyiv, but news of the attacks is still frequent.

On Wednesday, the speaker of Russia’s lower house of parliament (Duma) proposed that Russia sell oil, grain, minerals, fertilizers, coal and timber in rubles in local currency, after Russian President Vladimir Putin had ordered that the price of natural gas exported to Europe or the United States be collected in rubles.

Markets focused again on the lack of supply after the American Petroleum Institute announced that crude stocks fell by three million barrels in the week ending March 25, three times the average reduction expected by ten analysts polled by Reuters.

What maintains the supply shortage is that the major producing countries are unlikely to increase their production above the agreed level of 400,000 barrels per day each month when the OPEC + group meets on Thursday, according to several sources close to the group.

On the other hand, oil prices are facing pressure from weak demand in China due to restrictions on movement related to the spread of Covid-19 cases.