Oil rises for a second day on concerns about supply tightness

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Model oil barrels are seen in front of rising stock graph in this illustration, July 24, 2022. REUTERS/Dado Ruvic/Illustration

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  • Russia’s Gazprom is increasing the pressure on the flow of gas to Europe
  • The Fed expected to raise interest rates by 75 bps on Wednesday
  • The Brent premium for US crude hits the widest in three years

LONDON, July 26 (Reuters) – Oil prices rose for a second day on Tuesday on growing concerns about tightening European supplies after Russia, a key energy supplier to the region, cut gas supplies through a major pipeline.

Brent crude futures rose $1.14, or 1.1%, to $106.29 a barrel. barrel at 1029 GMT, extending a 1.9% gain the previous day.

US West Texas Intermediate (WTI) crude futures rose $1.31, or 1.4%, to $98.01 a barrel. barrel, after rising 2.1% on Monday.

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

The cut in supplies will leave countries unable to meet their goals of replenishing natural gas stocks ahead of the winter demand period. Germany, Europe’s largest economy, faces potentially rationing gas to industry to keep its citizens warm in the winter months. Read more

“The announcement revived fears that Russia, despite its cynical denials, will not shy away from using its energy as a weapon to extract concessions in its war against Ukraine and… could probably expect short-term success,” Tamas Varga of Oil Brokerage PVM said.

The European Union has repeatedly accused Russia of resorting to energy blackmail, while the Kremlin says shortfalls are caused by maintenance problems and the effect of Western sanctions.

On Tuesday, EU countries adopted an emergency regulation to limit their gas consumption this winter. Read more

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

Still, falling demand due to recent high crude and fuel prices and the expectation of an interest rate hike in the US have put pressure on prices.

The US Federal Reserve is generally expected to raise interest rates by 75 basis points at the end of its policy meeting on Wednesday. This increase may reduce economic activity and thus affect fuel demand growth. Read more

Morgan Stanley said 77% of global central banks have raised interest rates in the past six months, with that percentage reaching a 40-year high, “making this the most synchronized cycle of rate hikes since the early 1980s” .

The bank lowered its forecasts for demand growth for this year and next. It forecasts Brent oil prices at $110 a barrel in the third quarter and WTI at $107.50, each $20 lower than their previous forecast.

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

Spot Brent spreads between months reached $5 a barrel on Tuesday. barrel, the highest level in three weeks. In a lagging market, prices in the first month are higher than in future months.

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Additional reporting by Yuka Obayashi in Tokyo and Muyu Xu in Singapore; Editing by Kirsten Donovan

Our standards: Thomson Reuters Trust Principles.

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