(Bloomberg) -- Oil rose, heading for second weekly gain, as Russia said it may cut crude production in response to the price cap imposed by the Group of Seven on its exports, highlighting risks to global supplies in the new year.
West Texas Intermediate gained to more than $79 a barrel, putting it on course for a gain of about 7% for the week. Russia may reduce output by 500,000 to 700,000 barrels a day in response to the cap, Deputy Prime Minister Alexander Novak was cited by the state-run Tass news service as saying.
As the war in Ukraine grinds on, traders have been waiting for Moscow’s full response to the cap, a policy that imposed a $60-a-barrel ceiling on Russian crude in a bid to reduce the Kremlin’s income while keeping exports on the market. President Vladimir Putin plans to sign a decree on the nation’s reaction to the threshold on Monday or Tuesday, containing unspecified “preventive measures”.
“A risk-on sentiment and a weaker US dollar are helping oil today,” said Giovanni Staunovo, a commodities analyst at UBS Group AG. “The Russian comments are also helping but the market probably wants to see it before it believes, hence a muted response.”
There have been early signs the cap is impeding Russian oil flows, an impact that would run counter to its stated aims. In the first full week after the limit came into effect on Dec. 5 — in tandem with a European Union ban on seaborne Russian imports and curbs on insurance — total volumes shipped from the nation sank by 54%, tanker tracking compiled by Bloomberg showed.
While China’s rapid shift from Covid Zero has bolstered the demand outlook next year, the swift shedding of curbs has been disruptive. With cases spiking, several measures of mobility including traffic congestion in major cities, subway usage and the number of domestic flights have slumped. That said, the country is also easing quarantine rules for air travel, which should boost consumption.
In the US, data this week showed a drop in commercial crude inventories, with nationwide holdings at their lowest for this time of year since 2014. Traders are also watching for any fallout for energy markets from a vicious winter storm that’s pummeling parts of the country.
“There is now a high likelihood that the Biden administration will gear up oil purchases heading into the new year,” said Ole Hvalbye, an analyst at SEB AB.
The prompt time spread in WTI futures was 15 cents a barrel in backwardation, a bullish pattern in which near-term prices are higher than later-dated ones. A week ago, it was 17 cents a barrel in an opposite bearish contango.