Oil prices soared about 4% today on supply tightness with another US crude stock drawdown, and the growing prospect of new Western sanctions against Russia even as Moscow and Kyiv held peace talks.
Brent futures rose $4.17, or 3.8%, to $114.40 a barrel by 1457 GMT, while US West Texas Intermediate (WTI) crude rose $3.97, or 3.8%, to $108.21.
US crude stockpiles fell for a second straight week, falling by a bigger-than-expected 3.4 million barrels last week, cutting inventories in the world's top consumer to 410 million barrels, their lowest since September 2018, government data showed.
"US crude inventories have shown another draw despite production ticking higher and yet one more solid SPR (Strategic Petroleum Reserve) release into commercial inventories," said Matt Smith, lead oil analyst at Kpler, noting the crude draw was driven by rising refining activity.
After six weeks of holding steady, US crude output inched up 100,000 barrels per day (bpd) last week to 11.7 million bpd, while stocks in SPR fell to their lowest since May 2002, and Gulf Coast refinery utilization rose to its highest since January 2020.
The market saw a sharp sell-off in the previous session after Russia promised to scale down military operations around Kyiv, but reports of attacks continued.
Crude's price recovery on Wednesday "suggests the oil market, at least, has a strong degree of scepticism about any 'progress' (in the peace talks)," Commonwealth Bank analyst Tobin Gorey said in a note.
The United States and its allies are planning new sanctions on more sectors of Russia's economy that are critical to sustaining its invasion of Ukraine, including military supply chains.
"We would see an additional 1 million barrels per day of Russian production at risk if relations with Europe worsen and an oil embargo is put in place, although we still see this as unlikely," consultancy JBC Energy said in a note.
Russia's top lawmaker on Wednesday warned the European Union that oil, grain, metals, fertiliser, coal and timber exports could soon be priced in roubles, having previously demanded that "unfriendly" countries pay in roubles for its gas.
In response, Germany triggered an emergency plan to manage gas supplies in Europe's largest economy on Wednesday.
Keeping the market tight, major oil producers are likely to stick to their scheduled output target increase of about 432,000 bpd when OPEC+ - the Organization of the Petroleum Exporting Countries and allies including Russia - meets on Thursday, several sources close to the group said.
However, oil prices face pressure from weakening demand in China owing to tightened mobility restrictions and Covid-19-related lockdowns in multiple cities including the financial hub of Shanghai.
To stabilize the economy, China will roll out policies as soon as possible, state media CCTV quoted a cabinet meeting as saying on Wednesday.