Investors assessed weakening demand outlook amid lockdowns in China against potential curbs on Russian energy exports by the EU.
Brent, the global benchmark for two thirds of the world's oil, was trading 0.65 per cent higher at $105.67 per barrel at 11.53am UAE time. West Texas Intermediate, the gauge that tracks US crude, was 0.43 per cent higher at $102.14 a barrel.
Oil prices rose sharply on Tuesday after two days of losses, with Brent gaining 2.6 per cent and WTI climbing more than 3 per cent.
“It seems that the weaponisation of its energy supplies by Russia has now begun, possibly driven by previously reluctant members of Nato getting on board and supplying heavy weapons to Ukraine,” Jeffrey Halley, senior market analyst, Asia Pacific at Oanda, said.
“If this is just the start of further energy escalation by Russia, the EU faces challenging times ahead. That likely explains why oil prices only reversed their losses from Monday and didn’t shoot into space.”
Moscow on Wednesday stopped natural gas supplies to Poland and Bulgaria in a major escalation with western allies that are supporting Ukraine with arms, defence systems and financial aid in its war against Russia.
Russia has asked for energy supply payments to be made in roubles, a demand European allies rejected. However, with payment deadlines now approaching for European nations, it remains to be seen how the 27-member bloc, which is heavily dependent on Russian oil and gas imports, will react to Moscow’s move.
The situation could worsen from here, Daniel Richards, Middle East and North Africa economist at Emirates NBD, said.
“As Russia has now effectively made its energy exports a political tool, in stopping gas flows to Bulgaria and Poland, fears will spread that they may follow with oil exports to the eurozone, adding more tightening pressure to markets,” Mr Richards said.
Oil prices have declined in recent weeks amid concerns for demand outlook and co-ordinated efforts by the US and the International Energy Agency to improve supply.
Crude prices, which rose close to $140 per barrel last month after the US banned Russian energy imports and the UK said it would phase out its purchase of Moscow's oil, have given up most gains. However, they could rise sharply as the EU considers widening sanctions to include Russian oil and gas exports.
China, the world’s second-largest economy and biggest crude importer, is experiencing a wave of Covid-19 infections and has introduced strict movement curbs in Shanghai, its largest city, to control the spread of coronavirus.
New cases have also been detected in China’s capital Beijing as the government continues to carry out mass testing to isolate every infected person as part of its “zero-Covid” strategy.
“Oil prices seem destined to range in a wide … choppy range,” Mr Halley said. “Russia concerns rightly supporting dips, while China's slowdown fears cap gains with lots of noise in between.”