Oil prices extended gains in early Asian trade on Wednesday as geopolitical tensions simmered with Russia warning of gas supply cuts to Poland and Bulgaria while hopes of Chinese economic stimulus buoyed oil demand outlook.
Brent crude futures rose $1.27, or 1.2 per cent, to $106.26 a barrel by 0143 GMT. US West Texas Intermediate crude futures rose $1.11, or 1.1 per cent, to $102.81 a barrel.
Crude prices settled about 3 per cent higher on Tuesday in volatile trade as the market is torn between supply and demand concerns over Russian oil and gas disruption and a worsening global economic outlook.
Russia's Gazprom has told Poland and Bulgaria it will halt gas supplies from Wednesday, in a major escalation of Russia's broader row with the West over its invasion of Ukraine, which Moscow calls a "military operation".
The news sent NYMEX ultra-low-sulfur diesel futures up more than 9 per cent on Tuesday to settle at $4.47 a gallon, a record close.
"Oil is supported via the escalation of geopolitical tensions," Stephen Innes of SPI Asset Management said in a note.
"Cutting gas flows is not new news, but it's the timing of Russia plugging the gas flows when stagflationary fears are running rampant again."
The International Monetary Fund (IMF) warned on Tuesday that Asia faces a "stagflationary" outlook with the Ukraine war, spike in commodity costs and a slowdown in China creating significant uncertainty.
China's central bank said on Tuesday it will step up prudent monetary policy support to its economy as Beijing races to stamp out a nascent Covid-19 outbreak in the capital and avert the same debilitating city-wide lockdown that has shrouded Shanghai for a month. Any stimulus would boost oil demand.
Despite extended lockdowns in Asia's biggest aviation market, China's domestic flight demand has rebounded, pushing global airline capacity to its highest level in 2022 this week, travel data firm OAG said on Tuesday.
In supply, US government data on crude inventories is due later on Wednesday. Industry data on Tuesday showed US crude and distillate stocks rose last week while gasoline inventories fell.
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