Oil climbs to 2-week high on Fed rate-cut signals, supply concerns

By Scott DiSavino

NEW YORK, Dec 5 (Reuters) - Oil prices edged up nearly 1% to a two-week high on Friday on increasing expectations the U.S. Federal Reserve will cut interest rates next week, which could boost economic growth and energy demand, as well as geopolitical uncertainty that could limit supplies from Russia and Venezuela.

Brent futures rose 49 cents, or 0.8%, to settle at $63.75 per barrel, while U.S. West Texas Intermediate (WTI) crude rose 41 cents, or 0.7%, to settle at $60.08.

Those were the highest closes for both crude benchmarks since November 18.

For the week, Brent was up about 1% and WTI was up about 3%, marking a second straight weekly gain for both contracts.

Investors digested a U.S. inflation report and recalibrated expectations for the Fed to reduce rates at its December 9-10 meeting.

U.S. consumer spending increased moderately in September after three straight months of solid gains, suggesting a loss of momentum in the economy at the end of the third quarter as a lackluster labor market and the rising cost of living curbed demand.

Traders have been pricing in an 87% chance that the Fed will lower borrowing costs by 25 basis points next week, according to CME Group's FedWatch Tool.

Separately, top Chinese and U.S. officials held a call on Friday to discuss trade, including ongoing efforts to implement an agreement to de-escalate their trade war.

In other trade news, U.S. President Donald Trump said he will meet with the leaders of Mexico and Canada to discuss trade issues on Friday after they gather in Washington for the 2026 World Cup draw.

Any talks that could reduce trade tensions between the U.S. and other nations could boost economic growth and energy demand.

INVESTORS FOCUSED ON RUSSIAN, VENEZUELAN OUTPUT

Investors also focused on news from Russia and Venezuela to determine whether oil supplies from the two sanctioned OPEC+ members will increase or decrease in the future.

The failure of U.S. talks in Moscow to achieve any significant breakthrough over the war in Ukraine has helped to boost oil prices so far this week.

"The lack of progress in the Ukrainian peace talks provides a bullish backdrop, but on the other hand, resilient OPEC production provides a bearish backstop. These two opposing forces make trading seemingly quiet," said Tamas Vargas, an oil market analyst at PVM.

The Group of Seven countries and the European Union are in talks to replace a price cap on Russian oil exports with a full maritime services ban in a bid to reduce the oil revenue that helps finance Russia's war in Ukraine, six sources familiar with the matter said.

OPEC+ includes the Organization of the Petroleum Exporting Countries and allies such as Russia. Any deal that could lift sanctions on Russia, the world's second-biggest crude producer after the U.S., could increase the amount of oil available to global markets.

Russian President Vladimir Putin, on his first trip to New Delhi since Russia's 2022 invasion of Ukraine, on Friday offered India uninterrupted fuel supplies, eliciting a cautious response even as he and Indian Prime Minister Narendra Modi agreed to expand trade and defense ties.

State refiners Indian Oil Corp and Bharat Petroleum Corp have placed January orders for the loading of Russian oil from non-sanctioned suppliers due to widening discounts, trade sources with knowledge of the matter said.

A Ukrainian drone attack caused a fire at Russia's Azov Sea port of Temryuk, the local emergencies center said on Friday. Temryuk handles liquefied petroleum gas (LPG), oil products and petrochemicals, as well as grain and other bulk food commodities.

Markets also were bracing for a potential U.S. military incursion into Venezuela after Trump reiterated the U.S. would start taking action to stop Venezuelan drug traffickers on land "very soon."

Rystad Energy said in a note that such a move could put at risk Venezuela's 1.1 million barrels per day of crude oil production, which goes mostly to China.

(Reporting by Scott DiSavino in New York and Anna Hirtenstein in London; Additional reporting by Colleen Howe in Beijing and Jeslyn Lerh in Singapore; Editing by Joe Bavier, Kate Mayberry, Chizu Nomiyama, Paul Simao and Cynthia Osterman)