Oil rallies after Russian flows halted via key pipe to Europe

Oil reversed an earlier decline as Russian shipments via the southern leg of a major pipeline to Europe were suspended.

Brent futures rose as much as 1.6 per cent to trade near $98 a barrel, after earlier dropping 1.8 per cent. Russian network operator Transneft said Ukraine halted flows through the Druzhba pipe toward Hungary, the Czech Republic and Slovakia on Aug. 4 as sanctions prevented Moscow’s transit payments. That section of the link usually carries about 250,000 barrels a day, Transneft data show.

Futures have been volatile in recent days amid thin summer trading volumes. The disruption to Russian oil supplies is a reminder of the risks to production in a market that’s been grappling with scant spare capacity. Yet prices also fell to a six-month low last week on global economic growth concerns.

“The market reaction tells you the fragility of the fundamentals remains acute,” said Harry Altham, an analyst at brokerage StoneX.

Prices

  • Brent for October settlement advanced as much as 1.6 per cent, and traded up 1.3 per cent at $97.86 a barrel at 7:33 a.m. New York time
  • West Texas Intermediate for September delivery rose 1.1 per cent to $91.78 a barrel

Flows via Druzhba’s northern leg, which supplies Germany and Poland, remain unaffected, Transneft said, adding that the company is working on alternative options for the transfer of funds.

Earlier in the day, prices fell as traders weighed the potential return of Iranian oil to the market. The US and Iran have just weeks to decide whether they want to revive their nuclear deal, after European Union diplomats presented parties with a final draft accord. 

© 2022 Bloomberg L.P.

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