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Oil prices climbed on Thursday as investors remain cautious the US-Russia summit on Ukraine on Friday will lead to a loosening of Russian crude sanctions and may even result in further action against buyers, while a weak market outlook capped gains.
Brent crude futures were up 24 cents, or 0.37 per cent, at $65.87 a barrel at 0356 GMT, while US West Texas Intermediate crude futures rose 21 cents, or 0.34 per cent, to $62.85, according to Reuters.
Both contracts hit their lowest in two months on Wednesday after bearish supply guidance from the US government and the International Energy Agency (IEA).
Trump on Wednesday threatened "severe consequences" if Putin does not agree to peace in Ukraine. Trump did not specify what the consequences could be, but he has warned of economic sanctions if the meeting in Alaska on Friday proves fruitless.
"The uncertainty of US-Russia peace talks continues to add a bullish risk premium given Russian oil buyers could face more economic pressure," Rystad Energy said in a client note.
"How Ukraine-Russia crisis resolves and Russia flows change could bring some unexpected surprises."
Trump has threatened to enact secondary tariffs on buyers of Russian crude, primarily China and India, if Russia continues with its war in Ukraine.
"Clearly there's upside risk for the market if little progress is made" on a ceasefire," said Warren Patterson, head of commodities strategy at ING, in a note.
The expected oil surplus through the latter part of this year and 2026, combined with spare capacity from the Organization of the Petroleum Exporting Countries, means that the market should be able to manage the impact of secondary tariffs on India, Patterson said.
But things become more difficult if we see secondary tariffs on other key buyers of Russian crude oil, including China and Turkey, he said.
Expectations the US Federal Reserve will cut rates in September is also supportive for oil. Traders are almost 100 per cent agreed a cut will happen after US inflation increased at a moderate pace in July.
Treasury Secretary Scott Bessent said he thought an aggressive half-point cut was possible given recent weak employment numbers.
The market is putting the odds of a quarter-percentage point cut at the Fed's September 16-17 meeting at 99.9 per cent, according to the CME FedWatch tool.