By Paul Carsten

LONDON (Reuters) -Oil prices edged up on Monday after fighting between Russia and Ukraine intensified over the weekend, although concerns about fuel demand in China and forecasts of a global oil surplus weighed on markets.

futures were up 47 cents, or 0.7%, to $71.51 a barrel at 1230 GMT, while U.S. West Texas Intermediate crude futures were at $67.35 a barrel, up 33 cents, or 0.5%.

Russia unleashed its largest air strike on Ukraine in almost three months on Sunday, causing severe damage to the country’s power system.

In a significant reversal of Washington’s policy in the Ukraine-Russia conflict, President Joe Biden’s administration has allowed Ukraine to use U.S.-made weapons to strike deep into Russia, two U.S. officials and a source familiar with the decision said on Sunday.

The Kremlin said on Monday that any such decision would mean the direct involvement of the United States in the conflict, and accused Biden’s administration of escalating the war.

“Biden allowing Ukraine to strike Russian forces around Kursk with long-range missiles might see a geopolitical bid come back into oil as it is an escalation of tensions there, in response to North Korean troops entering the fray,” IG markets analyst Tony Sycamore said.

Saul Kavonic, an energy analyst at MST Marquee, said: “So far there has been little impact on Russian oil exports, but if Ukraine were to target more oil infrastructure that could see oil markets elevate further.”

In Russia, at least three refineries have had to halt processing or cut runs due to heavy losses amid export curbs, rising crude prices and high borrowing costs, according to five industry sources.

Brent and WTI fell more than 3% last week on weak data from China, the world’s second-largest oil consumer, and after the International Energy Agency forecast that global oil supply would exceed demand by more than 1 million barrels per day in 2025, even if output cuts remain in place from OPEC+.

China’s refinery throughput fell 4.6% in October from last year and the country’s factory output growth slowed last month, government data showed on Friday.

Investors also fretted over the pace and extent of interest rate cuts by the U.S. Federal Reserve that have created uncertainty in global financial markets.