Oil crawls higher on supply doubts, but set for sharp weekly decline

Oil prices clawed back some losses on Friday but were on track for their biggest weekly drops since November after see-sawing on fears of escalating bans on Russian oil versus efforts to bring more supply to market from other major producers.

Brent crude futures inched up 11 cents to $109.44 a barrel at 0149 GMT after dropping 1.6% in the previous session. U.S. West Texas Intermediate (WTI) crude futures climbed 46 cents, or 0.4%, to $106.48 a barrel, following a 2.5% decline on Thursday.

In a week of volatile trading marked by talk of Russian oil embargoes then potential supply additions from Iran, Venezuela and the United Arab Emirates while fighting escalated in Ukraine, Brent was on track for a weekly fall of about 7% after hitting a 14-year high of $139.13. U.S. crude was headed for a drop of around 8% after touching a high of $130.50.

Prices eased this week after it became clear the European Union, heavily reliant on Russian energy, would not join the United States and Britain in banning Russian oil. Russia, the world's second largest crude exporter behind Saudi Arabia, exports about 3 million barrels per day of crude to Europe's OECD countries.

"The oil market is not prepared to face such a supply shock as inventories stand at a multi-year low level," ANZ Research analysts said in a report. In the near term, supply gaps are unlikely to be filled by extra output from members of the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, given that Russia is part of the grouping, Commonwealth Bank analyst Vivek Dhar said.

"They're really tied politically by the structure," he said. In addition, some OPEC+ producers, including Angola and Nigeria, have struggled to meet their production targets, further limiting the group's ability to offset Russian supply losses.

Commonwealth Bank forecasts Brent will average $110 in the second and third quarters of this year, but sees prices potentially climbing as high as $150 in the short term.

"All of it is very uncertain. It's been very difficult to come out with a view," Dhar said.