Oil prices climbed about 2% to a one-week high on Thursday after U.S. President Donald Trump warned of "severe consequences" if his talks with Russian President Vladimir Putin on Ukraine fail, and on optimism that a likely U.S. interest rate cut next month could spur oil demand.

Central banks, like the U.S. Federal Reserve, use interest rates to control inflation. Lower rates reduce consumer borrowing costs and can boost economic growth and demand for oil.

Brent crude futures rose $1.21, or 1.8%, to settle at $66.84 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $1.31, or 2.1%, to settle at $63.96.

Those price gains pushed both crude benchmarks out of technically oversold territory for the first time in three days, and led Brent to its highest close since August 6.

On Tuesday, Brent closed at its lowest price since June 5 and WTI closed at its lowest price since June 2 due in part to bearish inventory and supply data from the U.S. Energy Information Administration and the International Energy Agency. [EIA/S]

Trump said on Thursday he thought Putin was ready to make a deal on ending his war in Ukraine after the Russian president floated the prospect of a nuclear arms agreement on the eve of their summit in Alaska.

But on Wednesday, Trump threatened "severe consequences" if Putin does not agree to peace in Ukraine, without elaborating. Trump has warned of economic sanctions if the meeting on Friday proves fruitless.

Russia was the second-biggest producer of crude in 2024 behind the U.S., so any agreement that could ease sanctions on Moscow would likely boost the amount of Russian oil available for export to global markets.

Trump has threatened to enact secondary tariffs on buyers of Russian crude, primarily China and India, if Russia continues its war in Ukraine.

"The uncertainty of U.S.-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.

Some analysts, however, remained skeptical that Trump would take action that could significantly disrupt oil supplies.

Source: Investing.com