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Russian gas cuts to Europe may stimulate a shift to crude as oil prices increase

Image: Reuters Berita 24 English - Tuesday saw a rise in oil prices as traders anticipated that Russia's limitation in natural gas expor...


Image: Reuters

Berita 24 English - Tuesday saw a rise in oil prices as traders anticipated that Russia's limitation in natural gas exports to Europe may stimulate a shift to crude, but gains were constrained by worries about declining fuel demand due to an anticipated rise in U.S. interest rates.

Following a 1.9 percent gain the day before, Brent crude futures for September settlement increased 45 cents, or 0.4 percent, to $105.60 a barrel by 0112 GMT.

After rising 2.1 percent on Monday, U.S. West Texas Intermediate (WTI) oil futures for September delivery jumped 34 cents, or 0.4 percent, to $97.04 a 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.

Russia's reduction in supplies will prevent countries from refuelling natural gas reserves in time for the winter demand season. The biggest economy in Europe, Germany, may have to limit gas to industry in order to keep its people warm over the winter.

According to Hiroyuki Kikukawa, general manager of research at Nissan Securities, "higher gas prices, prompted by Russia's gas squeeze, could lead to increased switching to crude from gas and support oil prices."

"But a tug-of-war between fears of supply risk due to the protracted Russia-Ukraine conflict and fears of weakening demand due to the economic slowdown amid rising U.S. interest rates will likely to continue for some time," he said, forecasting WTI to stay in a trading range centred on $100 a barrel.

The end of the U.S. central bank's policy meeting on Wednesday is largely anticipated to result in a 75 basis point increase in interest rates. A rise of that size would basically end the economy's assistance from the epidemic era.

As falling gasoline demand in the US drags on U.S. crude and tight supply supports the global Brent benchmark, the difference between Brent and WTI has expanded to levels not seen since June 2019.



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