Oil prices rose more than $1 on Friday in anticipation of a drop in Russia’s crude oil supply, helping to offset US transportation fuel demand concerns as an impending Arctic storm threatens travel during the holiday season.
Brent crude rose 66 cents, or 0.8%, to $81.64, while West Texas Intermediate (WTI) crude was up 78 cents, or 1%, to $78.27.
Earlier in the session, they hit $82.17 and $78.77, respectively. With Brent up 3.3% and WTI 5.4%, both contracts are on track to post a second weekly gain.
According to traders, Russia’s Baltic oil exports could fall by 20% in December compared to the previous month, after the European Union and G7 countries imposed sanctions and price caps on Russian crude from December 5th.
Russia could reduce oil production by 5% to 7% in early 2023 as it responds by halting sales to countries that support price ceilings on crude oil and oil products.
Energy traders focused on Moscow’s response to the ceilings on Russian oil, rather than the thousands of flight cancellations that would disrupt holiday travel.
More than 4,400 US flights were canceled in a two-day period due to the winter storm, and the storm coincided with a holiday travel season that was predicted to be the busiest ever.
On Thursday, oil prices on both sides of the Atlantic fell as flights were canceled. Snowstorms can reduce fuel consumption, upsetting drivers’ travel plans over Christmas and New Year’s.
However, demand for heating oil may increase as extreme weather conditions are expected to cause power outages.
Cold air is expected to spread south as far south as Texas, Florida, and eastern states as US crude oil stocks drop and winter storms hit the US. This will increase the demand for heating oil.
According to the Energy Information Administration (EIA), US crude inventories fell more than expected in the week of December 16 as imports fell sharply, falling by 5.9 million barrels to 418.2 million barrels, compared to forecasts for a decline of 1.7 million barrels.
However, rising COVID-19 cases in China, the world’s #2 oil consumer, concerns about further rate hikes globally, and the recession that dampened fuel consumption limited oil price increases.
The optimism is still strong that China is the biggest driver of the oil market and that the reopening will continue, leading to more demand.
