Oil rises 3% on supply threats, still set for weekly drop on demand fears

© Reuters. The chimneys of the Total Grandpuits oil refinery are seen just after sunset, southeast of Paris, France, March 1, 2021. REUTERS/Christian Hartmann

By Stephanie Kelly

NEW YORK (Reuters) -Oil prices rose about 3% on Friday supported by real and threatened cuts to supply, although futures were set for a second weekly decline as aggressive interest rate hikes and China's COVID-19 curbs weighed on the demand outlook.

Russian President Vladimir Putin has threatened to halt oil and gas exports to Europe if price caps are imposed and a small cut to OPEC+ oil output plans announced this week also supported prices.

Brent crude rose $2.70, or 3%, to $91.85 a barrel by 11:22 a.m. EDT (1522 GMT). U.S. West Texas Intermediate (WTI) crude rose $2.63, or 3.2%, to $86.17 a barrel.

"Over the coming months, the West will have to contend with the risk of losing Russian energy supplies and oil prices soaring," said Stephen Brennock of oil broker PVM.

Pressured by worries about a recession and demand, Brent is down sharply from a surge in March close to its all-time high of $147 after Russia invaded Ukraine.

Despite Friday's bounce, both crude benchmarks were headed for a weekly drop, with Brent down about 1.4% on the week after at one point hitting its lowest since January. WTI was on track for a weekly decline of 0.9%.

A U.S. Department Of Energy official said the White House was not considering new releases from the U.S. Strategic Petroleum Reserve (SPR) at this time beyond the 180 million barrels that President Joe Biden announced months ago. Earlier, Energy Secretary Jennifer Granholm told Reuters the administration was weighing the need for further SPR releases.

"The White House is backing off another release from the SPR," said Phil Flynn, an analyst at Price Futures Group. "Looks like a lot of the fears the market had previously have gone away."

Meanwhile, European Central Bank's unprecedented rate hike of 75 basis points this week and more COVID-19 lockdowns in China have weighed on prices.

The city of Chengdu extended a lockdown for most of its more than 21 million residents on Thursday while millions more in other parts of China were told to shun travel during upcoming holidays.