Oil prices climb as a Russian pipeline shutdown rekindles supply concerns.
Oil gained more than $1 per barrel on Tuesday, reversing a previous loss, when Russia announced that oil deliveries to Europe via the southern leg of the Druzhba pipeline had been halted since early August, sparking concerns about a supply shortage.
Transneft, Russia’s pipeline monopoly, said Ukraine had blocked oil supplies via the pipeline segment because Western sanctions prohibited Moscow from paying transit costs.
“Not that we needed it at this point, but it serves as a reminder of how tight the market is and how vulnerable the price is to supply disruptions, particularly those from Russia,” said Craig Erlam, an analyst at brokerage OANDA.
Brent crude was up $1.28, or 1.3%, to $97.93 a barrel at 1136 GMT, after sliding as low as $94.90 earlier in the day. West Texas Intermediate (WTI) crude in the United States rose $1.18, or 1.3%, to $91.94.
The Druzhba development comes at a time when supply concerns have been easing despite increased fear about a recession. Previously, oil was under pressure due to advances in talks to resurrect the Iran nuclear deal, which would allow for more Iranian oil exports.
According to Tamas Varga of oil trader PVM, the pipeline shutdown and overall scepticism about the Iranian nuclear deal likely prompted the increase. “Having said that, I believe the ban will have a short-term impact,” he said.
The European Union proposed a “final” document to resurrect the 2015 agreement on Monday. According to a senior EU official, a final decision on the idea, which requires US and Iranian consent, is likely in “very, very few weeks.”
Without a deal, talks have dragged on for months. Still, according to tanker trackers, Iran’s oil exports are at least one million barrels per day lower than they were in 2018, when then-US President Donald Trump pulled out of the nuclear agreement, so an agreement might allow for a significant increase in supplies.
Oil prices rose early this year as a result of Russia’s invasion of Ukraine, with Brent reaching $139 in March, close to its all-time high.
Brent sank to $92.78 per barrel on Friday, its lowest level since February, after the Bank of England’s forecast of a prolonged downturn on Thursday heightened concerns about falling fuel consumption.
The latest batch of weekly US oil supply data will be released at 2030 GMT, beginning with the American Petroleum Institute. Crude inventories are expected to fall by 400,000 barrels, according to analysts.