Oil gains from Russian production cuts offset rising US inventories

LONDON, Feb. 24 (Reuters) – Oil prices extended their gains for a second session on Friday, as the prospect of lower exports from Russia offset rising inventories in the United States and concerns about global economic activity.

Brent oil futures were up 89 cents, or 1.1%, to $83.10 a barrel by 1042 GMT. On the anniversary of the Russian invasion of Ukraine, reference prices for Brent oil were about 14% lower than a year earlier. They hit a 14-year high of nearly $128 a barrel on March 8, 2022.

West Texas Intermediate U.S. crude oil futures (WTI) rose 79 cents, or 1.05%, to $76.18.

Benchmarks ended about 2% higher in the previous session on Russia’s plans to cut oil exports from its western ports by up to 25% in March, surpassing announced production cuts of 500,000 barrels per day.

“Higher-than-expected US crude inventories continue to test oil demand prospects, but expectations for lower Russian production are offsetting,” said Yeap Jun Rong, market strategist at IG.

US inventories are at their highest level since May 2021.

U.S. crude inventories rose 7.6 million barrels to about 479 million barrels in the week ended Feb. 17, according to data from the U.S. Energy Information Administration.

And indications that Russian crude and refined products are accumulating on tankers floating at sea further weighed on supply prospects.

JP Morgan said in a note Friday that it sees short-term prices fall to $70 rather than rise “as global growth headwinds strengthen and excess ‘dark’ stocks, exacerbated by a flood of Russian oil, are cleared.”

The bank also said it expects the Organization of Petroleum Exporting Countries (OPEC) to cut production to limit the drop in oil prices.

For the week, oil prices have remained broadly flat following last week’s drops of about 4%, also weighted by concerns about rising interest rates that could strengthen the dollar and dampen fuel demand.

The minutes of the last meeting of the US Federal Reserve showed that a majority of officials remained aggressive about inflation and tight labor market conditions, signaling further monetary tightening.

The prospect of further interest rate hikes supported the dollar index, which was set to rise for the fourth week in a row. The index is now up about 2.5% for the month.

A strong dollar makes commodities priced in the dollar more expensive for holders of other currencies.

Additional reporting by Andrew Hayley; Additional reporting by Jeslyn Lerh; edited by Sharon Singleton and Jason Neely

Our Standards: The Thomson Reuters Principles of Trust.