Oil prices increased on Monday on speculation that Russia’s gas cut to Europe could drive a switch to crude, though fears over declining fuel demand due to an expected Fed rate hike restrained gains.
At 11.31 hrs. local time in Thailand, Brent crude futures for September were trading at $106.67 per barrel, up US$1.52, or 1.45 percent, from the previous day’s 1.9 percent rise.
Meanwhile, U.S. West Texas Intermediate (WTI) crude futures for September added US$1.40, or 1.44 percent to $98.10 a barrel, following Monday’s 2.1% rise.
Russia’s state-owned Gazprom announced on Monday that it will cut daily deliveries via the Nord Stream pipeline to 33 million cubic meters a day – about 20 percent of the pipeline’s capacity – starting on Wednesday.
The “technical condition of the engine,” according to a statement from the firm, is the reason for the suspension of one of the final two working turbines.
Russia’s cut in supplies will leave European nations unable to meet its goals to refill natural gas storage ahead of the winter demand period. Meanwhile, Germany may be forced to restrict the supply of gas to industry in order to keep its residents warm throughout the winter.
“Higher gas prices, triggered by Russia’s gas squeeze, could lead to additional switching to crude from gas and support oil prices,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.
“But a tug-of-war between concerns about weakening demand due to the economic slowdown amid rising U.S. interest rates and fears of supply risk because of prolonged Russia-Ukraine conflict will likely continue for some time,” he said, predicting WTI to remain in a trading range centered on $100 a barrel.