Oil prices edge up on worries about Russian output, higher US demand

By Scott DiSavino

NEW YORK, Oct 8 (Reuters) - Oil prices edged up about 1% to a one-week high on Wednesday as traders expected a lack of progress on a Ukraine peace deal to keep sanctions in place against Moscow, while a weekly report showed growing U.S. oil consumption.

Brent crude futures LCOc1 rose 80 cents, or 1.2%, to settle at $66.25 a barrel. U.S. West Texas Intermediate (WTI) crude CLc1 rose 82 cents, or 1.3%, to settle at $62.55.

That was the highest close for Brent since September 30 and for WTI since September 29.

A top Russian diplomat said the impetus to reach a peace deal with Ukraine was largely exhausted.

Analysts have said a peace deal would likely allow more Russian oil to flow to global markets. Russia was the second-biggest crude producer in the world after the U.S. in 2024, according to U.S. energy data.

Despite sanctions, Russia has been gradually raising oil production and was close last month to meeting its OPEC+ output quota, Deputy Prime Minister Alexander Novak said on Wednesday, the Interfax news agency reported.

OPEC+ includes the Organization of the Petroleum Exporting Countries and allies like Russia.

Moscow's energy sector has been under serious strain in the past two months due to a wave of Ukrainian drone attacks, mainly targeting oil refineries.

Also supporting crude futures, investors expected the U.S. Federal Reserve to keep cutting interest rates. Investors have been without most U.S. economic data during a U.S. government shutdown.

Fed officials agreed at their recent policy meeting that risks to the U.S. job market had grown enough to warrant an interest rate cut, but many remained wary of high inflation, minutes of the September 16-17 session showed.

The central bank is widely expected to cut rates by 25 basis points at its October 28-29 meeting, according to the CME Group’s FedWatch Tool.

Lower interest rates can boost economic growth and demand for oil.

U.S. OIL INVENTORIES

Oil markets held gains as traders focused more on a U.S. report showing an increase in oil consumption last week than the bigger-than-expected increase in crude inventories.

The U.S. Energy Information Administration (EIA) said energy firms added 3.7 million barrels of crude into inventories during the week ended October 3. EIA/S API/S ENERGYUSA, ENERGYAPI

That was more than the 1.9-million-barrel build analysts forecast in a Reuters poll and the 2.8-million-barrel build market sources said the American Petroleum Institute (API) trade group cited in its figures on Tuesday.

EIA, however, did say that total weekly petroleum products supplied, a proxy for U.S. oil consumption, rose last week to 21.990 million barrels per day, the most since December 2022.

"The demand numbers are pretty strong and that should keep the market supported," said Phil Flynn, a senior analyst at Price Futures Group.

OPEC+ PRODUCTION INCREASE

Oil markets were up about 3% so far this week after OPEC+ on Sunday announced a smaller-than-expected output increase for November.

OPEC+ agreed to raise its output targets for November by 137,000 barrels per day on growing concerns about a looming glut in the oil market, sources from the group told Reuters.