Oil settles up on Shanghai lockdown easing, Russian production cuts

© Reuters. FILE PHOTO: A worker walks past a pump jack on an oil field owned by Bashneft company near the village of Nikolo-Berezovka, northwest from Ufa, Bashkortostan, Russia, January 28, 2015. REUTERS/Sergei Karpukhin

By Laura Sanicola

(Reuters) -Oil prices settled higher on Tuesday as lockdowns eased in Shanghai and as Russian oil and gas condensate production fell to 2020 lows and OPEC warned it would be impossible to replace potential supply losses from Russia.

Brent crude futures rose $6.16, or 6.3%, to settle at $104.64 a barrel by 1:48 p.m. EDT. U.S. West Texas Intermediate rose $6.31, or 6.7%, to settle at $100.60. On Monday, both benchmarks fell about 4%.

Shanghai said more than 7,000 residential units had been classified as lower-risk areas after reporting no new infections for 14 days. Districts have been announcing which compounds can be opened up.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) warned it would be impossible to replace 7 million bpd of Russian oil and other liquids exports lost in the event of sanctions or voluntary actions.

Russian oil and gas condensate production fell below 10 million barrels per day (bpd) on Monday to its lowest since July 2020, two sources familiar with data said on Tuesday, as sanctions and logistical constraints hampered trade.

Sources said Russia's average oil output fell more than 6% to 10.32 million bpd on April 1-11 from 11.01 million in March.

The European Union has yet to embargo Russian oil, but some foreign ministers said the option is on the table.

"The oil market is still vulnerable to a major shock if Russian energy is sanctioned, and that risk remains on the table," wrote Edward Moya, a senior market analyst with OANDA.

OPEC on Tuesday lowered its Russian liquids production forecast by 530,000 bpd for 2022, but also cut its forecast for growth in world oil demand, citing the impact of Russia's invasion of Ukraine, soaring crude prices and resurgence of the pandemic in China.

Indian Oil Corp (IOC), which bought Russian Urals in previous tenders, has removed the grade from its latest crude tender. U.S. President Joe Biden told Indian Prime Minister Narendra Modi on Monday that buying more oil from Russia was not in India's interest.

IEA member nations are planning to release 240 million barrels over the next six months from May in an effort to calm the market.

While the release will ease immediate tightness, analysts suggested it will not solve the structural deficit, and stocks will need to be replenished.

A preliminary Reuters poll showed {{8849|U.S. crcrude oil inventories are likely to have risen by 1.4 million barrels in the week to April 8 after declining for three consecutive weeks.

The poll was conducted ahead of a report from the American Petroleum Institute due at 4:30 p.m. EDT (2030 GMT) on Tuesday.