Oil rises after huge slump as market weighs Opec filling Russia supply gap

Brent crude futures settled down US$16.84, or 13.2 per cent, at US$111.14 a barrel. PHOTO: AFP

MELBOURNE (REUTERS) - Oil rebounded on Thursday (March 10) after the biggest one-day plunge in two years as the market contemplated whether major producers would boost supply to help plug the gap in output from Russia due to sanctions for its invasion of Ukraine.

Brent crude futures were up 4.7 per cent, at US$116.31 a barrel at 6pm Singapore time, after trading in about a US$5 range. The contract slumped 13 per cent in the previous session in its biggest one-day drop in nearly two years.

US crude futures rose 4.1 per cent to US$113.18 a barrel.

Global benchmark Brent crude has traded as high as US$139 and as low as US$105 so far this week.

Uncertainty over where and when supply will come from to replace crude from the world’s second-largest exporter Russia in a tight market has led to wide-ranging forecasts for oil prices between US$100 and US$200 a barrel.

“So to suggest the oil market is confused would be an understatement as we are in an unprecedented situation,” said Mr Stephen Innes, managing partner at SPI Asset Management.

Comments from the United Arab Emirates energy minister and the country’s ambassador to Washington sent conflicting signals.

UAE Energy Minister Suhail al-Mazrouei said on Twitter late on Wednesday that his country is committed to the existing agreement by the Organisation of Petroleum Exporting Countries and allies including Russia, together called Opec+, to ramp up oil supply by 400,000 barrels a day monthly following sharp cuts in 2020.

Just hours before, prices slumped on comments from the UAE’s ambassador to Washington Yousef Al-otaiba saying his country will be encouraging Opec to consider higher output to fill the supply gap due to sanctions on Russia after it invaded Ukraine. Russia calls its incursion a “special operation” to disarm its neighbour.

The comments from UAE officials came as the market also took into account moves by the United States to ease sanctions on Venezuelan oil and efforts to seal a nuclear deal with Teheran, which could lead to more oil supply coming from Iran later this year.

Talks set for Thursday between Russia and Ukraine’s foreign ministers in Turkey also gave the market reason for pause.

While UAE and Saudi Arabia have spare capacity, some other Opec+ producers are struggling to meet their output targets due to underinvestment in infrastructure over the past few years, which will limit their ability to lift output further.

“We think it will be challenging for Opec+ to boost production in this environment,” Commonwealth Bank commodities analyst Vivek Dhar said.

Meanwhile, US crude oil, fuel stockpiles fell last week, adding to the worries over already tight global supplies.

Crude inventories fell by 1.9 million barrels in the week to March 4 to 411.6 million barrels, compared with analysts’ expectations in a Reuters poll for a 657,000-barrel drop.

US crude stocks in the Strategic Petroleum Reserve fell to 577.5 million barrels, the lowest since July 2002. 

Oil prices had already fallen during the session after the International Energy Agency (IEA) said crude reserves could be tapped further.

"If there's a need, if our governments decide so, we can bring more oil to the markets, as one part of the response," said IEA chief Fatih Birol.

Mr Birol said the IEA decision last week to release 60 million barrels of oil from strategic reserves was "an initial response".

US Strategic Petroleum Reserve levels fell last week to their lowest since July 2002, as the Biden administration had already approved releases in November as part of a larger effort to boost the US fuel supply.

Follow The Straits Times' live coverage on the Ukraine crisis here.

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