Second Week Of Oil Gains As Russia Comments Kindle Supply Fears

Analysts also debated where oil is heading in 2023: File Image/Pixabay

Despite recent choppy trading governed by an overall bearish sentiment, oil prices on Friday achieved another round of daily gains as well as a second straight week of gains, based largely on Russia saying it may reduce crude output as a comeback to being hit by the European Union/Group of Seven price cap for its invasion of Ukraine.

Brent settled up $2.94 to $83.92 per barrel, and West Texas Intermediate settled up $2.07 to $79.56 per barrel, with both benchmarks recording their biggest weekly gains since October.

Alexander Novak, deputy prime minister of Russia, told the RIA news agency on Friday that his country may cut oil production by 5 percent to 7 percent in early 2023 in response to the caps, and it was also estimated that the former Soviet Union's Baltic oil exports could decline by as much as 20 percent in December compared to November. 

Eli Tesfaye, senior market strategist at RJO Futures, said, "If global demand continues at current pace, that cut could have a significant impact and we may stay in the $80s range."

UBS was even more aggressive in its outlook: its experts believed that prices could return to above $100 per barrel next year due to the Russian cuts as well as China easing its Covid restrictions and allowing its economy to recover.

But Giovanni Staunovo, analyst at UBS, warned, "The road for higher prices will however stay bumpy."

Warren Venketas, analyst at DailyFX, mused that "should Chinese authorities manage to stifle the virus situation as well, markets could really maintain higher levels of risk appetite giving crude oil some backing against global recessionary fears."

For his part, Dan Yergin, vice chairman of S&P Global, said there was a chance oil could rise as high as $121 per barrel when China fully reopens, but he maintained that "Our base case for 2023 is $90 for Brent."

In other oil news on Friday, trading also benefited from short-term supply concerns resulting from the winter storm pummelling the U.S.: oil refineries in Texas cut gasoline and diesel production, and 1 million barrels of daily refining capacity in the U.S. Gulf Coast was shut due to cold temperatures.

Also, freeze-ins lowered production in North Dakota's oilfields by up to 350,000 barrels per day, a third of normal.