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Oil settles higher as Russia orders output cuts, geopolitical tensions persist

Published 03/24/2024, 08:58 PM
Updated 03/25/2024, 03:01 PM
© Reuters. A state controlled oil refinery Lotos is pictured in Gdansk, Poland June 6, 2022. Picture taken June 6, 2022. REUTERS/Kacper Pempel

By Georgina McCartney

HOUSTON (Reuters) -Oil prices settled higher on Monday as orders from the Russian government to curb oil output, and attacks on energy infrastructure in both Russia and Ukraine offset the United Nation's demand for a ceasefire in Gaza.

Brent crude futures settled $1.32 higher or 1.55%, at $86.75 a barrel. U.S. crude futures settled $1.32 higher, or 1.64%, at $81.95.

Both benchmarks have risen steadily this year, with Brent up nearly 11% and WTI up about 12.5% by Friday's close, on expectations that interest rates in major economies will come down by the summer, and geopolitical tensions in eastern Europe and the Middle East.

Moscow, meanwhile, has ordered companies to reduce oil output in the second quarter to meet a production target of 9 million barrels per day (bpd) by the end of June, in line with its pledges to the producer group OPEC+, three industry sources said on Monday.

"Russia is committed to the OPEC+ cuts. They are looking beyond the current supply and demand fundamentals and looking at unity with OPEC+, as well as the risk of a bigger price shock further down the road," said Phil Flynn, analyst at Price Futures Group.

Attacks on Russian energy facilities and Ukrainian energy infrastructure have stoked supply concerns, said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan (OTC:NSANY) Securities.

Another Russian oil refinery had half of its capacity knocked out in a drone attack over the weekend, sources told Reuters. It was the latest casualty from a string of attacks by Ukraine this month that have shuttered 7% of total refining capacity, Reuters calculations show, on top of unrelated maintenance.

Russia attacked Ukrainian generating and transmission facilities last week and over the weekend, causing blackouts in many regions.

Elsewhere, the United Nations Security Council adopted a resolution on Monday demanding an immediate ceasefire between Israel and Palestinian militants Hamas and the release of all hostages after the United States abstained from the vote.

"We will have to see how the U.N. resolution on a ceasefire actually plays out on the ground in Gaza, and whether that would ultimately result in the Houthis stopping their attacks on tanker traffic in the Red Sea," Andrew Lipow, president of Lipow Oil Associates said.

© Reuters. A state controlled oil refinery Lotos is pictured in Gdansk, Poland June 6, 2022. Picture taken June 6, 2022. REUTERS/Kacper Pempel

Yemen-based Houthi rebels have been ramping up attacks on ships traversing the Red Sea in support of Palestinians in Gaza.

A ceasefire could help relieve supply bottlenecks if the Houthis wind down their attacks by allowing vessels to use the Suez Canal rather than taking longer, more costly diversions around the horn of Africa.

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