Oil rises for a second day on supply issues

The pattern of oil barrels is seen in front of the rising stock market chart in this illustration, July 24, 2022. REUTERS/Dado Ruvic/Illustration

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  • Russian Gazprom tightens pressure on gas flows to Europe
  • The Fed is expected to raise rates by 75 basis points on Wednesday
  • Brent premium to US crude hits highest level in three years

TOKYO/SINGAPORE, July 26 (Reuters) – Oil prices rose for a second day on Tuesday on growing concerns over tight European supplies after Russia, a major oil and gas supplier natural gas in the region, cut off the gas supply via a major pipeline.

Brent futures for September settlement rose $1.66, or 1.6%, to $106.81 a barrel at 0618 GMT, extending a 1.9% gain the previous day. .

U.S. West Texas Intermediate (WTI) crude futures for September delivery rose $1.47, or 1.5%, to $98.17 a barrel, after gaining 2.1% on Monday.

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Russia tightened its gas squeeze on Europe on Monday as Gazprom (GAZP.MM) said supplies through the Nord Stream 1 pipeline to Germany would fall to just 20% of capacity. Read more

Reduced supplies from Russia will prevent the country from meeting its targets for recharging natural gas storage before the winter demand period. Germany, Europe’s largest economy, faces potential gas rationing to industry to keep its citizens warm during the winter months. Read more

This could encourage end users to swap their gas for petroleum products, especially diesel. But it also carries risks since Russia provides most of the region’s diesel fuel and prices for fuel-dependent drivers are expected to rise. Read more

“Rising gas prices, triggered by gas compression in Russia, could lead to a further shift to crude oil and support oil prices,” said Hiroyuki Kikukawa, managing director of research at Nissan Securities.

Europe’s crude, petroleum product and gas supplies have been disrupted by a combination of Western sanctions and payment disputes with Russia since its Feb. 24 invasion of Ukraine, which Moscow calls a “military operation.” special”.

Still, lower demand due to recent high crude and fuel prices and the expectation of higher interest rates in the United States have put pressure on prices.

“A tug of war between worries about weakening demand due to the economic slowdown amid rising U.S. interest rates and fears of supply risk due to the protracted conflict between Russia and Ukraine will likely continue for some time,” Kikukawa said, predicting WTI will trade. in a range around $100 per barrel.

The US central bank is expected to raise interest rates by 75 basis points after its policy meeting on Wednesday. This increase can reduce economic activity and therefore impact fuel demand growth. Read more

Market sentiments are swinging between worries about supply instability and expectations of weaker fuel demand amid downward pressure from the global economy, analysts at Haitong Futures said.

The gap between European and international benchmark oil Brent and US benchmark WTI has widened to levels not seen since June 2019 as lower US gasoline demand weighs on US crude while that tight supply supports Brent. Read more

“Despite the price discount…both contracts have futures curves that remain in deep decline, signaling that rapid physical supplies remain tight,” Jeffrey Halley, senior market analyst at OANDA, wrote in a note.

“Russia remains the wild card in the energy space, supporting prices, a situation that is unlikely to change any time soon.”

Fast Brent intermonth spreads hit $5 a barrel on Tuesday, their highest level in three weeks. In a lagging market, prices in the first month are higher than those in subsequent months.

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Reporting by Yuka Obayashi in Tokyo and Muyu Xu in Singapore; Editing by Christian Schmollinger and Stephen Coates

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