Oil rises for a second day

Oil prices increased for a second Tuesday as concerns about constraining European supply grew after Russia, the region’s main oil and natural gas supplier, stopped gas flow through a major pipeline.

Brent crude futures for September delivery increased $1.66, or 1.6 percent, to $106.81 per barrel at 0618 GMT, adding to a 1.9 percent gain the previous day.

WTI crude futures in the United States for September delivery rose $1.47, or 1.5 percent, to $98.17 per barrel, after rising 2.1 percent on Monday.

On Monday, Russia strengthened its grip on Europe by announcing that supplies through the Nord Stream 1 pipeline to Germany would be reduced to 20% capacity.

Due to Russia’s supply disruption, countries cannot reach their goals for replenishing natural gas storage ahead of the winter demand period. Germany, Europe’s largest economy, may have to ration gas to the industry to keep its residents warm during the winter. Since Russia’s Feb. 24 invasion of Ukraine, Europe’s crude, oil product, and gas supplies have been hampered by Western sanctions and payment issues with Russia.

Nonetheless, reducing demand due to recent high oil and fuel costs and the likelihood of an increase in interest rates in the United States has put downward pressure on pricing.

According to Haitong Futures experts, market sentiment is wavering between concerns about supply-side volatility and prospects for weaker fuel demand as the global economy continues to deteriorate.

The spread between European and international oil benchmark Brent and US benchmark WTI has expanded to levels not seen since June 2019, as falling gasoline demand weighs on US crude while tight supply supports Brent.

oil up

Oil rises on Nord Stream

Russia has further decreased gas shipments to Germany overnight, threatening to undo oil gains on the reopening of Nord Stream 1. As that realization sank in, Brent crude increased 1.20 percent to USD 104.85 per barrel, while WTI rose 1.30 percent to USD 96.25 per barrel. Russian moves have also frightened Asian markets, sending prices skyrocketing. Brent crude is 1.85 percent higher at USD 106.60 per barrel, while WTI is 1.80 percent higher at USD 98.00 per barrel.

Despite WTI’s price discount to Brent widening to near three-year highs, both contracts’ futures curves remain deep backward, indicating that immediate physical supplies remain tight, even as US gasoline stockpiles rise dramatically and refinery profits decline.

Russia continues to be the wild card in the energy market, supporting prices, which is unlikely to change very soon. WTI appears to be the more fragile of the two futures, with the stronger physical beta to US domestic energy use.

Brent crude is reaching key technical resistance at USD 108.80 per barrel, a sustained breach of which implies a wider advance to USD 115.00 per barrel. The support level is USD 101.50 per barrel. WTI faces resistance at USD 100.00, and it has recently rallied off its 200-day moving average (DMA) at USD 94.85. Significant topside squeezes by WTI remain probable until the 200-DMA is broken consistently.

Shell and important factors

Oil and gas giant Shell has taken the final investment decision

Following regulatory permission earlier this year, oil and gas giant Shell has made the final investment decision (FID) to develop the Jackdaw gas field in the UK North Sea.

Jackdaw will have an unmanned wellhead platform and subsea infrastructure connecting to Shell’s existing Shearwater gas hub.

Aside from this project, Shell plans to create two new floating offshore wind farms off the coast of Scotland, which could power six million households, and to have 100,000 public EV charging stations operating in the UK by 2030.

In March, shell stated in a new environmental statement that it would minimize venting and adjust a treatment process at Jackdaw to reduce the project’s emissions.

The Just Stop Oil coalition promptly protested, demanding the government defend the “livable world” by halting all new oil and gas licenses and approvals. Stop Cambo, Extinction Rebellion, and others pushing for No New Oil and Gas spoke out against Business Secretary Kwasi Kwarteng’s approval of the Jackdaw project.

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