Oil rises as Russian pipeline shutdown reignites supply fears

Sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. REUTERS/Angus Mordant

LONDON, Aug 9 (Reuters) – Oil rose $1 a barrel on Tuesday, reversing an earlier decline, after Russia said oil exports to Europe via the southern branch of the Druzhba pipeline had been suspended since early August, rekindling concerns about supply shortages.

Russian pipeline monopoly Transneft said Ukraine suspended oil flows through the section of the pipeline because Western sanctions prevented Moscow from paying transit fees. Read more

“It’s not that we need it at this point, but it’s another reminder of market tension and price sensitivity to supply disruptions, particularly from Russia,” he said. said Craig Erlam of brokerage firm OANDA.

Brent crude rose 92 cents, or 1.0%, to $97.57 a barrel as of 1335 GMT, after falling to $94.90 earlier. U.S. West Texas Intermediate (WTI) crude gained $1.02, or 1.1%, to $91.78.

Until the news from Druzhba, rising expectations that the economic downturn would reduce demand for oil had outweighed worries about supply.

The oil market has also come under pressure from progress in talks to revive the Iran nuclear deal, which would see an increase in Iranian oil exports.

Tamas Varga of oil broker PVM said the pipeline shutdown and general skepticism surrounding the Iran nuclear deal likely prompted the rally. “Having said that, the suspension should really have a short-term impact, in my opinion,” he said.

The European Union on Monday proposed a “definitive” text to relaunch the 2015 Agreement with Iran. A senior EU official said a final decision on the proposal, which requires US and Iranian approval, was expected in “very, very few weeks”.

Talks have dragged on for months without a deal.

Iran’s crude oil exports, oil tankers say, are at least 1 million barrels a day lower than their rate in 2018, when US President Donald Trump quit the nuclear deal, so a agreement could allow a considerable increase in supply.

Oil soared earlier in the year as Russia’s invasion of Ukraine added to supply problems, with Brent hitting $139 in March, near its all-time high.

Brent crude fell to $92.78 on Friday, its lowest since February, as the Bank of England’s warning on Thursday of a prolonged slowdown raised expectations of lower fuel consumption.

The latest round of weekly US oil supply reports are in view, first from the American Petroleum Institute at 20:30 GMT. Analysts expect a small drop of 400,000 barrels in crude inventories.

Additional reporting by Sonali Paul and Emily Chow Editing by Louise Heavens, Mark Potter and Barbara Lewis

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