Oil up 2 percent on US crude stock drop, Russian refinery attacks

LONDON: Oil prices rose 2 percent on Wednesday, supported by a drop in U.S. crude inventories as well as potential supply disruption after Ukrainian attacks on Russian refineries and signs of strong demand.

Brent crude futures for May were up $1.54, or 1.88 percent, to $83.46 a barrel by 1445 GMT. U.S. West Texas Intermediate crude for April gained $1.59, or 2.05 percent, to $79.15.

U.S. crude stockpiles fell by 1.5 million barrels to 446.99 million barrels in the week to March 8 according to data from the Energy Information Administration (EIA), falling below forecasts of a 1.3 million barrel drop.

U.S. crude processing rose by 1.9 percentage point to 86.8 percent utilisation according to the EIA, as refinery capacity returns from maintenance. Brent remains range-bound despite Wednesday's rally. The front-month contract has settled in a narrow range between $81.50-$84 a barrel for more than a month.

"While the geopolitical temperature has moved higher by a few degrees since December we have yet to experience any disruptions, and the market has concluded that such a risk is currently very low," Saxo Bank analyst Ole Hansen said of the narrow trading range.

Ukraine launched a drone attack on Russian regions on Wednesday, causing a fire at Rosneft's biggest oil refinery in what President Vladimir Putin said was an attempt to disrupt Russia's presidential election.

"The sudden but understandable brightening of (oil price) sentiment has been triggered by the continuous strikes on Russian refiners," said Tamas Varga of oil broker PVM.

Oil and the wider financial markets also found support from sentiment that the latest U.S. inflation will not derail interest rate cuts by mid-year. Lower rates support oil demand.

"Crude trades higher today after yesterday’s hotter-than-expected U.S. inflation print did little to alter the market's view on the timing and subsequent depth of incoming growth-supportive U.S. rate cuts," Hansen added.

In an earlier sign of strong demand, the Organization of the Petroleum Exporting Countries on Tuesday stuck to its forecast for oil demand growth of 2.25 million barrels per day (bpd) in 2024, higher than many other forecasts. The International Energy Agency, which expects demand growth to be much lower, updates its forecasts on Thursday.

Meanwhile, the United States is trying to help India negotiate lower prices for Russian oil as it deepens sanctions on tankers carrying the petroleum above Western price caps, President Joe Biden's energy envoy said.

Washington imposed sanctions late last month on Russia's leading tanker group Sovcomflot on the two-year anniversary of Moscow's full scale invasion of Ukraine. It also designated 14 crude oil tankers as property in which Sovcomflot had an interest.

That led to concerns in India of a potential dent in Russian oil sales to India, the biggest buyer of Russian seaborne crude, and that the fresh sanctions could complicate efforts by Indian state refiners to secure annual supply deals, Reuters reported late last month.

"At the end of the day, my goal is not to take it off the market, I'm not looking to take these tankers, take the crude, the product, off the market," Amos Hochstein, Biden's energy and global infrastructure adviser, told Reuters on the sidelines of a conference.

"I'm trying to get the Indians to negotiate better prices by forcing the tankers into a different direction. I think the Indians understand what we're trying to do," Hochstein said.

Western sanctions on Russia, one of the world's top energy producers, have shifted global oil markets, forcing the country to ship oil to new customers in India and China and away from traditional consumers in Europe.

The sanctions and the $60 per barrel price cap imposed on cargoes of Russian oil that use Western-based maritime services such as insurance, transportation and flagging, have pushed dozens of tankers carrying Russian oil to swap flags from Liberia and the Marshall Islands that have registries based in Virginia, to flags from other countries, including Gabon.

The tankers have swapped flags in an effort to avoid sanctions, but they could still be vulnerable to the measures if they carried oil above the price cap with the original flag.

The goal of the price cap has been to reduce Russia's revenues it can spend on the war in Ukraine while keeping oil flowing to global markets.