Jul 26, 2022 02:40AM ET
By: AnalysisWatch
Oil prices rose for a second day on Tuesday on growing fears of a supply squeeze in Europe after Russia, a key supplier of oil and natural gas to the region, cut off gas supplies through a major pipeline.
Brent crude futures for September settlement rose $1.66, or 1.6 percent, to $106.81 a barrel as of 6:18 a.m. GMT, extending a 1.9 percent gain from the previous day.
After rising 2.1 percent on Monday, U.S. West Texas Intermediate crude futures for September delivery rose $1.47, or 1.5 percent, to $98.17 per barrel.
Russia tightened its gas squeeze on Europe on Monday, with Gazprom saying supplies through the Nord Stream 1 pipeline to Germany would be cut to just 20% of capacity.
Russia's reduction in supplies will result in countries' being unable to meet their targets to replenish natural gas storage ahead of the winter demand period.
Germany, Europe's largest economy, is facing possible rationing of gas to industry to keep its citizens warm during the winter months.
This could lead end-users to replace gas with petroleum products, especially diesel. But this also carries risks, as Russia supplies most of the region's diesel, and prices for drivers who depend on this fuel are expected to rise.
However, the reduction in demand due to recent high crude and fuel prices and the expectation of rising interest rates in the US are putting pressure on prices.
There is widespread expectation that the US central bank will raise interest rates by 75 basis points at the conclusion of its policy meeting on Wednesday.
This hike could reduce economic activity and thus affect fuel demand growth.
The gap between European and international benchmark Brent and US benchmark WTI has widened to levels not seen since June 2019, as falling US gasoline demand weighs on US crude while tight supply supports Brent.
On Tuesday, Brent's express month-on-month spread hit $5 a barrel, its highest level in three weeks. In a lagging market, front-month prices are higher than those in future months.