Russian supply worries cause oil price rise of 2%. U.S. storm impact is in focus

By Dmitry Zhdannikov & Emily Chow

LONDON (Reuters] – Oil prices rose more than 2% Friday due to expectations of a fall in Russian crude supplies. This helped to offset concerns of a decrease in U.S. transport fuel demand growth, as a looming Arctic hurricane threatens travel during the holiday period.

Brent crude crude rose $1.72 (2.10%) to $82.70/barrel at 1305 GMT. U.S. West Texas Intermediate(WTI) crude was $79.37/barrel, up 1.88, or 2.37%.

Both contracts rose by more than $2 per barrel on Friday, and are on track for their second weekly gain.

According to Reuters calculations, Russia’s Baltic crude oil exports could drop by 20% in December compared with the previous month. The European Union and G7 countries imposed sanctions and a price ceiling on Russian crude starting Dec. 5.

Russia could cut its oil output by 5%-7% in response to price caps in 2023, Deputy Prime Minister Alexander Novak stated Friday.

Edward Moya, OANDA analyst, stated that crude prices are rising because energy traders concentrate on Moscow’s response regarding the price cap placed on Russian oil. He also said that this is not a reflection of the thousands in flight cancellations that could disrupt holiday travel.

The winter storm caused more than 4,400 cancellations of flights in the United States over two days. It coincided with holiday travel season, which some predict could be the busiest.

Oil prices on both sides were lower Thursday as flights were cancelled. Also, the snowstorm could disrupt motorists’ plans to travel in December and New Year. This will result in a decrease in gasoline consumption.

The extreme weather that is likely to cause power disruptions could lead to an increase in heating oil demand.

“As U.S. crude oils inventories drop and winter storms hit the U.S.,” Leon Li, an analyst at CMC Markets, said that cold temperatures will continue to spread southward to Texas and Florida as well as the eastern states. According to Leon Li, an analyst with CMC Markets. “The demand for heating oil will soar.”

U.S. crude stockpiles declined more than anticipated in the week up to December 16, due to sharply falling imports. [EIA/S]

However, China’s number two oil consumer and a rising COVID-19 rate have limited oil’s price increases.

Moya, OANDA’s chief economist, stated that China is the biggest risk to the oil market. He also said that he was optimistic that the reopening of China will continue and ultimately lead to greater demand.

(Reporting from Dmitry Zhdannikov and Florence Tan in London, Emily Chow and Emily Chow respectively in Singapore; Editing: Mark Potter, KirstenDonovan