DTN Oil

WASHINGTON, D.C. (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange advanced more than 1.5% on Tuesday after Russia announced it would extend a unilateral 500,000 bpd production cut, first announced in February, through the end of June, potentially signaling a sustained production drop due to Western sanctions on its crude and oil products.

Although analysts are skeptical whether Russia indeed reduced oil production last month, it cannot be ruled out that EU import bans and a G7 price cap have taken a bite out of the country's crude output. Moscow first announced a 500,000-bpd production cut on Feb. 10 after Deputy Prime Minister Alexander Novak warned there was a real risk the country would have to lower oil production this year due to the EU import bans and G7 price cap on its oil products. At the time, Novak said the cut would only last until the end of March.

Today, Novak added that, "In accordance with the current market situation, the decision to voluntarily reduce production by the amount of 500,000 bpd will be valid until June 2023 inclusive."

WTI and Brent prices have lost more than $10 bbl over the past week, spurred in part by fears that the collapse of two midsized U.S. banks would spread to other banks and trigger a financial crisis. But the sentiment recovered somewhat as those concerns eased after the rescue of Credit Suisse AG, which was sold to its long-time rival UBS Group for around $3.25 billion and shares of U.S. regional banks stabilized.

Tuesday's higher settlements also come ahead of the release of the highly anticipated rate decision from the Federal Open Market Committee that concludes its two-day policy meeting on Wednesday. As of this morning, 83.4% of investors expect the Federal Reserve to lift interest rates by 25 basis points to just above 4.75% at the conclusion of Wednesday's meeting, according to CME's Fed Watch Tool. That compares to just 16.6% of investors who believe the central bank will pause rate increases.

"For credibility's sake, the Federal Reserve will probably raise rates 25 basis points. I would think that that would be the last increase," said Jeffrey Gundlach, founder and chief executive of DoubleLine Capital.

Earlier this month when testifying before Congress, Fed Chairman Jerome Powell said the U.S. central bank was "prepared to increase the pace of rate hikes," and "the ultimate level of interest rates is likely to be higher than previously anticipated."

However, since these comments were made, the United States has witnessed two major bank failures, requiring direct intervention by the federal government at a historic scale to protect depositors.

At settlement, West Texas Intermediate for April delivery advanced $1.69 bbl to expire at $69.33 bbl, and WTI for May delivery settled at $69.67 bbl. The international crude benchmark Brent contract for May delivery gained $1.53 to $75.32 bbl. NYMEX RBOB April futures settled at $2.5389 gallon and the front-month ULSD contract firmed $0.0031 to $2.6902 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com