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Oil prices settle up 4% despite big U.S. crude inventory build

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© Reuters. Active pumpjacks from oil wells are pictured at the Inglewood Oil Field, the largest urban oil field in the United States, from the Baldwin Hills Scenic Overlook in Culver City, California, U.S., March 10, 2022. Picture taken March 10, 2022. REUTERS/Bing

By David Gaffen

NEW YORK (Reuters) -Oil prices rose on Wednesday as investors grew more discouraged about peace talks between Russia and Ukraine, feeding worries about tight supplies even after U.S. crude stocks rose by more than 9 million barrels in the most recent week.

Brent crude was up $2.72, or 2.6%, to $107.36 a barrel by 12:52 p.m. (1652 GMT) U.S. West Texas Intermediate (WTI) crude futures gained $2.39, or 2.4%, to $102.99.

The gains came a day after both benchmarks climbed more than 6%.

“Even though prices have fallen back a bit in recent weeks, they remain extremely high by past standards,” said Kieran Clancy, commodities economist at Capital Economics.

On Tuesday, Russian President Vladimir Putin said Ukraine derailed peace talks and said Moscow would continue what it calls a “special military operation.” U.S. President Joe Biden accused Russia of genocide.

The developments reinforced the view “the Ukraine-Russia situation will not be de-escalating any time soon,” said OANDA senior market analyst Jeffrey Halley. “The downside for oil prices is limited.”

The oil market’s retreat from late March peaks came partly because buyers are unclear about the extent of potential disruptions to Russian supply. On Monday, Russian oil and gas condensate production fell below 10 million barrels per day (bpd), lowest since July 2020.

However, the International Energy Agency (IEA) on Tuesday lowered its expectations for worldwide demand and said it anticipated rising global production could offset Russian oil output losses. The IEA said it expects Russian output to drop 1.5 million bpd in April, growing to close to 3 million bpd from May.

The White House is releasing 180 million barrels from U.S. reserves over six months, part of a release of 240 million barrels from members of the International Energy Agency.

U.S. production is expected to keep rising from 11.8 million bpd now to about 12 million in 2022. Exports of refined products reached an all-time record, as heavy overseas demand caused U.S. stockpiles to fall.

The Organization of the Petroleum Exporting Countries (OPEC), has said it would be impossible to replace expected supply losses from Russia and it would not pump more crude.

Reports this week of a partial easing of some of China’s tight COVID-19 lockdown measures also underpinned oil prices on the basis they could boost demand. However, weak economic data from China and Japan limited gains.

China’s crude oil imports slipped 14% from a year earlier, extending a two-month slide in the world’s top crude importer. Japan reported its biggest monthly fall in core machinery orders in nearly two years.

OPEC on Tuesday cut its forecast for 2022 global oil demand growth, citing Russia’s invasion of Ukraine, inflation and resurgence of the pandemic in China. OPEC expects global demand to grow by 3.67 million bpd in 2022, down 480,000 bpd from its previous forecast.

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