- Oil prices rise for a second day after Gazprom halts gas flow through Nord Stream 1 pipeline.
- A decrease in supplies will prevent countries from refueling natural gas reserves in time for winter.
- The spread between the US WTI and the European Brent widened to $5 per barrel on Tuesday.
After Russia, a major energy provider to the area halted gas flow through a major pipeline, concerns about a tightening of the European supply led to an increase in oil prices on Tuesday for a second day.
By 10:29 GMT, Brent crude futures had increased by $1.14, or 1.1 percent, to $106.29 per barrel, building on the previous day’s gain of 1.9 percent.
After rising 2.1 percent on Monday, US West Texas Intermediate (WTI) oil futures jumped $1.31, or 1.4 percent, to $98.01 per barrel.
On Monday, Gazprom said that shipments through the Nord Stream 1 pipeline to Germany would reduce to just 20% of capacity, tightening Russia’s grip on Europe’s gas market.
The decrease in supplies will prevent countries from refueling natural gas reserves in time for the winter demand season. The biggest economy in Europe, Germany, may have to limit gas to the industry in order to keep its people warm over the winter.
According to Tamas Varga of oil brokerage PVM, “the news reignited suspicions that Russia, despite its disingenuous denial, will not hesitate to use its energy as a weapon in order to extract concessions in its fight against Ukraine and…Could possibly expect short-term success.”
While the Kremlin claims that gaps are the result of maintenance concerns and the impact of Western sanctions, the European Union has accused Russia of using energy blackmail on numerous occasions.
EU nations came to an emergency regulation agreement on Tuesday to reduce gas consumption during winter.
However, falling demand due to recent high crude and fuel prices and the expectation of an increase in interest rates in the United States have put pressure on prices. Western sanctions and payment disputes with Russia since its Feb. 24 invasion of Ukraine have disrupted Europe’s crude, oil product, and gas supplies.
The completion of the US Federal Reserve’s policy meeting on Wednesday is largely anticipated to result in a 75 basis point increase in interest rates. That increase might lessen economic activity, which would affect the rise in fuel consumption.
The percentage of rate increases by central banks worldwide in the past six months has reached a 40-year high, according to Morgan Stanley, making this cycle of rate increases the most coordinated since the early 1980s.
The bank revised its predictions for this year and next year’s demand growth. Both Brent and WTI crude prices are predicted to be $10 per barrel in the third quarter, $20 less than their earlier predictions.
The difference between the US benchmark WTI and the European and international oil benchmark Brent has expanded to levels not seen since June 2019 as falling US gasoline demand weighs on US crude and tight supply supports Brent.
On Tuesday, prompt Brent inter-month spreads rose to $5 per barrel, the highest level in the previous three weeks. Prices in the front month are greater than prices in the following months in a backwardated market.
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