Workers walk as oil pumps are seen in the background in the Uzen oil and gas field in the Mangistau Region of Kazakhstan November 13, 2021.
Workers walk as oil pumps are seen in the background in the Uzen oil and gas field in the Mangistau Region of Kazakhstan November 13, 2021. Reuters / PAVEL MIKHEYEV

Oil prices extended gains on Wednesday amid simmering geopolitical tensions as Russia cut gas supplies to Bulgaria and Poland, while hopes of Chinese economic stimulus buoyed the demand outlook.

Brent crude futures rose 67 cents, or 0.6%, to $105.66 a barrel by 0636 GMT. U.S. West Texas Intermediate crude futures gained 44 cents, or 0.4%, to $102.14 a barrel.

Crude prices settled about 3% higher on Tuesday in volatile trade as the market is torn between supply and demand concerns over Russian oil and gas disruption and a worsening global economic outlook.

"The market is increasingly volatile and event driven," said Howie Lee, an economist at Singapore's OCBC bank.

"Energy security across the world is getting more vulnerable and vulnerable security normally comes with a higher price tag."

Russian energy giant Gazprom said on Wednesday it has completely halted gas supplies to Bulgaria and Poland due to absence of payments from the countries in roubles for the fuel delivery, in a major escalation of Russia's broader row with the West over its invasion of Ukraine, which Moscow calls a "military operation".

The row sent NYMEX ultra-low-sulfur diesel futures up more than 9% on Tuesday to settle at $4.47 a gallon, a record close.

"Oil is supported via the escalation of geopolitical tensions," Stephen Innes of SPI Asset Management said in a note.

"Cutting gas flows is not new news, but it's the timing of Russia plugging the gas flows when stagflationary fears are running rampant again."

The International Monetary Fund (IMF) warned on Tuesday that Asia faces a "stagflationary" outlook with the Ukraine war, a spike in commodity costs and a slowdown in China creating significant uncertainty.

China's central bank said on Tuesday it will step up prudent monetary policy support to its economy as Beijing races to stamp out a nascent COVID-19 outbreak in the capital and avert the same debilitating city-wide lockdown that has shrouded Shanghai for a month. Any stimulus would boost oil demand.

Despite extended lockdowns in Asia's biggest aviation market, China's domestic flight demand has rebounded, pushing global airline capacity to its highest level in 2022 this week, travel data firm OAG said on Tuesday.

In supply, U.S. government data on crude inventories is due later on Wednesday. Industry data on Tuesday showed U.S. crude and distillate stocks rose last week while gasoline inventories fell. [API/S] [EIA/S]