Oil Jumps 4% on Supply Cut Threats

By Adedapo Adesanya

Oil prices closed higher by about 4 per cent on Friday, supported by real and threatened cuts to supply, with Brent growing by $3.69 or 4.1 per cent to settle at $92.84 a barrel and the United States West Texas Intermediate (WTI) crude increasing by $3.25 or 3.9 per cent to settle at $86.79 a barrel.

Despite Friday’s bounce, both crude benchmarks headed for a weekly drop, with Brent down by about 0.6 per cent after hitting its lowest since January at one point and the WTI declining by 0.3 per cent on a week-on-week basis.

Russian President Vladimir Putin has threatened to halt oil and gas exports to Europe if price caps are imposed.

“We will not supply anything at all if it contradicts our interests,” Mr Putin said at an economic forum in Vladivostok this week.

“We will not supply gas, oil, coal, heating oil – we will not supply anything,” the Russian president said as he also questioned a United Nations-brokered deal to export grain from Ukraine.

Europe usually imports about 40 per cent of its gas and 30 per cent of its oil from Russia.

The Group of Seven is trying to find ways to limit Russia’s lucrative oil export revenue in the wake of the invasion of Ukraine in order to weaken its power.

A US official said that the price cap that G7 countries want to impose on Russian oil to punish the country should be set at a fair market value minus any risk premium resulting from its invasion of Ukraine.

Pressures remained with European Central Bank (ECB) hiking its rate by 75 basis points this week just as more COVID-19 lockdowns in China have weighed on prices.

The city of Chengdu extended a lockdown for most of its more than 21 million residents while millions more in other parts of China were told to shun travel during upcoming holidays.

This happened after a small cut to oil output plans was announced this week by the Organisation of the Petroleum Exporting Countries and its allies, OPEC+.

US oil rigs fell five to 591 this week, their lowest since mid-June, energy services firm Baker Hughes Co said, as the growth in the rig count and production has slowed despite relatively high energy prices.