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. Last Updated: 07/27/2016

Oil Prices Drop on Russia Worries

NEW YORK -- Deepening doubts over Russia's commitment to the supply cuts it has promised the OPEC cartel piled more pressure on weak U.S. oil prices Friday.

February crude on the New York Mercantile Exchange fell 35 cents lower to $20.03 per barrel by midday, down more than $1.50 per barrel over the week. Russia's benchmark Urals blend crude fell 93 cents to $19.51.

Fresh downward pressure came after Russia decided to scrap restrictions on fuel oil exports from its Baltic and Black Sea ports in January, despite its pact with the Organization of the Petroleum Exporting Countries producers to bolster oil prices by reining in supply.

Russia promised to cut back its booming oil exports, currently around 3 million barrels per day, by 150,000 bpd from Jan. 1 as part of a producers' deal to slice nearly 2 million bpd from the 76 million bpd world market.

Oil traders have worried that Russia's crude cut will only be cosmetic as the country's new breed of private firms can simply increase exports of refined product instead, and fuel exports fall during the icy Russian winter anyway.

Most Russian oil firms have said they would not change their ambitious plans for output growth this year, and the country's sixth-largest oil producer, Sibneft, said Thursday it expected its output to increase 26 percent in 2002.

As doubts grow over Russia's compliance, traders are watching closely for signs of whether OPEC, which has cut supply four times in a year to hold up prices, has the stomach to implement the new reductions.

OPEC members with quotas were producing 600,000 bpd over their old 23.8 million bpd ceiling in December.

Leading producer Saudi Arabia has taken the lead in committing to the cuts, telling oil companies that their supplies have been reduced again for February, oil traders said Friday.

"The Saudis look serious ... but Russia exporting products has to be bearish," a New York oil broker said.

A rally to two-month highs last week in the wake of the producer cuts has evaporated since fresh signs emerged of depressed demand in the United States at a time when seasonal heating consumption should be at its peak.

U.S. stocks of spare distillate fuel, including heating oil, jumped 3 percent last week despite a short cold snap in the heating-oil hungry northeast, the Energy Information Administration said Wednesday.

U.S. oil demand has fallen 4 percent from the same time last year as economic downturn and a retreat in commercial air travel since the Sept. 11 attacks take their toll, the EIA said.

After an unseasonably mild autumn, heating oil stocks have risen 16.2 million barrels, or nearly 35 percent, above last year's levels as households and businesses take advantage of low prices for rival fuel natural gas.

Mild forecasts for the northeast over the next 10 days have further weighed on heating oil prices, which are running 35 percent lower than levels at this time last year.