Oil rose on Wednesday, following a 9% drop over the previous two sessions, on supply concerns as the European Union worked on gaining support for a ban on Russian oil and major producers warned they may struggle to fill the gap when demand improves.
U.S. West Texas Intermediate crude climbed $5.74, or 5.79%, to $104.87 a barrel. Both contracts fell more than $1 in early trade.
Brent crude rose $5.55, or 5.48%, to $107.08 a barrel.Oil prices have slumped with commodities and share markets this week, on worries about the hit to economic activity from prolonged COVID curbs in China and sharp interest rate hikes in the United States.
However the supply side still faces challenges.
The EU has proposed to impose an embargo on Russian oil, but a vote, which needs unanimous support, has been delayed as Hungary has dug in its heels in opposition and other European nations have voiced concerns that their economies could suffer.
The impact of the embargo could be limited if the ban is watered down to ease the concerns of eastern European members, but analysts said oil prices could still go higher.
“Even if we do see some of the measures relaxed, it is likely that EU sanctions will still meaningfully reduce EU imports of Russian oil and refined products,” Commonwealth Bank analyst Vivek Dhar said in a note.
Highlighting supply concerns, United Arab Emirates energy minister Suhail al-Mazrouei warned on Tuesday that when fuel demand recovers from the coronavirus pandemic, the Organization of the Petroleum Exporting Countries and its allies, together called OPEC+, may not be able to meet demand without further investment.
His comments followed Saudi Arabian Energy Minister Prince Abdulaziz bin Salman’s remarks that the world needs to pay attention not just to tight crude supply but energy capacity running short more broadly.
Capping market gains, the dollar held near a two-decade high ahead of a reading on inflation that could hint at the outlook for Fed policy, making crude more expensive for buyers using other currencies.