Oil rises as Russian pipeline shutdown revives supply fears

Sticker shows crude oil on the side of a Permian Basin storage tank in Mentone, Loving County, Texas, U.S. November 22, 2019. REUTERS/Angus Mordant

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  • Russia’s oil exports stopped via the southern part of the Druzhba pipeline
  • EU presents ‘final’ text to revive Iran nuclear deal
  • Recession, fear of demand also weigh on the market
  • Coming Up: API Supply Report, 2030 GMT

LONDON, Aug 9 (Reuters) – Oil rose above $1 a barrel on Tuesday, reversing an earlier decline, after Russia said oil exports to Europe via the southern section of the Druzhba pipeline had been suspended since early August, sparking the concern about tight supply.

Russian pipeline monopoly Transneft said Ukraine had suspended the flow of oil via the pipeline because Western sanctions had prevented a payment from Moscow for transit fees from going through. read more

“Not that we need it at this point, but it’s another reminder of how tight the market is and how sensitive the price is to supply disruptions, especially those from Russia,” said Craig Erlam of brokerage OANDA.

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Brent crude was up $1.28, or 1.3%, at $97.93 a barrel by 1136 GMT, after earlier falling as low as $94.90. US West Texas Intermediate (WTI) crude added $1.18, or 1.3%, to $91.94.

The Druzhba development comes as supply concerns had eased amid growing fears of a recession. Earlier, oil was under pressure from progress in talks to revive Iran’s nuclear deal, which would allow higher Iranian oil exports.

Tamas Varga of oil broker PVM said the pipeline shutdown and general skepticism about the Iran nuclear deal had probably led to the attendance. “Having said that, the suspension should really have a short-term impact, in my view,” he said.

The European Union presented a “final” text on Monday to revive the 2015 agreement. A senior EU official said a final decision on the proposal, which needs US and Iranian approval, was expected within “a very, very few weeks”. read more

The negotiations have been going on for several months without an agreement. Still, according to tanker trackers, Iran’s crude exports are at least 1 million barrels per day below their 2018 rate when then-US President Donald Trump pulled out of the nuclear deal, so a deal could allow for a significant increase in supply.

Oil rose earlier in the year as Russia’s invasion of Ukraine heightened supply concerns, with Brent reaching $139 in March, near a record high.

Brent fell as low as $92.78 on Friday, its lowest since February, as the Bank of England’s warning on Thursday of a prolonged downturn fueled fears of a slowdown in fuel use.

The latest round of weekly US oil supply reports will appear, first from the American Petroleum Institute at 2030 GMT. Analysts expect a small drop of 400,000 barrels in crude oil inventories.

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Additional reporting by Sonali Paul and Emily Chow Editing by Louise Heavens and Mark Potter

Our standards: Thomson Reuters Trust Principles.

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