Oil prices jump almost 2% on risks to Russian output

Oil prices rose nearly 2 per cent on Friday on renewed concern over Russian crude supply, outweighing pressure from oversupply and weaker U.S. demand risks.

Brent crude futures rose $1.31, nearly 2 per cent, to $67.68 a barrel by 1211 GMT and U.S. West Texas Intermediate crude gained $1.12, or 1.8 per cent, to $63.49.

The Kremlin said on Friday that there was a pause in peace negotiations between Russia and Ukraine. Negotiators have held three rounds of direct talks this year in Istanbul, most recently on July 23, but the two sides remain far apart on how a possible peace deal might look, which could trigger further Western sanctions against Russia. "Strong sanctions could potentially overshadow the underlying oversupply outlook," said SEB Research analyst Ole Hvalbye. Meanwhile, a drone attack on Russia's northwestern port of Primorsk - one of the country's largest oil and fuel export terminals - led to a suspension of oil loading operations overnight, an official from Ukraine's SBU security service told Reuters. "Those attacks on Russian energy infrastructure have room to drag down Russian crude and refined product exports," said UBS analyst Giovanni Staunovo. The Brent and WTI benchmarks had fallen by 1.7 per cent and 2 per cent respectively on Thursday. A monthly report from the International Energy Agency on Thursday said that global oil supply would rise more rapidly than expected this year because of planned output increases by the OPEC+ group comprising the Organization of the Petroleum Exporting Countries and allies such as Russia.

However, OPEC's own report later in the day made no change to its relatively high forecasts for oil demand growth this year and next, saying the global economy was maintaining a solid growth trend.

While there is a risk of a tumble in oil prices, factors such as tightness in the distillates market, sustained buying from China to fill inventories and potential sanctions on Russia and secondary sanctions on its customers are keeping the market supported, said PVM Oil Associates analyst John Evans. On the supply side, India's largest private port operator, Adani Group, has banned tankers sanctioned by Western countries from entering all of its ports, three sources told Reuters and documents show, potentially curbing Russian oil supplies.

India is the biggest buyer of Russian seaborne oil, mostly shipped on tankers that are under sanctions by the European Union, United States and Britain.