Oil prices edged higher on Tuesday amid growing supply concerns as Russia decided to further cut gas supplies to Europe as tensions over Ukraine grow.
Brent, the global benchmark for two-thirds of the world's oil, was trading 1.72 per cent higher at $106.96 a barrel at 12.36pm UAE time on Tuesday. West Texas Intermediate, the gauge that tracks US crude, was up 1.82 per cent at $98.46 a barrel.
Russian state-owned energy company Gazprom said on Monday that it would be further cutting gas flows through Nord Stream 1, Russia's biggest gas pipeline to Europe, as it waits for the delivery of a vital turbine after repairs.
The company said it needs to halt the operation of a Siemens gas turbine at a compressor station, which is expected to reduce the gas flows through the Nord Stream 1 pipeline to 33 million cubic metres from July 27, which is 20 per cent of the total capacity of the pipeline.
Russia’s natural gas supply accounts for about 40 per cent of European imports and has been a crucial lifeline for the continent.
Moscow has “tightened the supply through Nord Stream 1 pipeline to Germany", Naeem Aslam, chief market analyst at Avatrade, said.
“Going into winter, gas supply for Europe will be the major issue as Kremlin is determined to play the tit-for-tat game … as the EU has imposed sanctions on Russia, [Russian President Vladimir] Putin will use the gas card to punish the EU.”
Oil prices rose in the past two days despite growing concerns over the slowdown in the global economy amid the coronavirus pandemic, rising inflation and Russia’s military offensive in Ukraine.
Prices declined in the earlier sessions of trading on Monday as recessionary fears grew, but rose later on supply concerns brought on by the ongoing Ukraine conflict.
"The reason that we see upticks in oil prices is two folds: firstly, it is the decline in the dollar index, and secondly, the signs of a tight supply of physical crude," Mr Aslam said.
The US Federal Reserve is expected to approve another big interest rate rise this week to tame surging inflation, which is at a 40-year high in the country as a result of the pandemic, rising oil prices and the Ukraine conflict. The move is expected to impact fuel demand in the world's largest economy.
"Russia remains the wild card in the energy space, supporting prices, a situation unlikely to change anytime soon," Jeffrey Halley,senior market analyst of Asia Pacific at Oanda, said.