Oil prices remained volatile on Tuesday despite supply concerns as Russia suspended oil exports to Europe through a major pipeline amid Moscow’s military offensive in Ukraine.
Ukraine halted flows through the Druzhba pipe towards Hungary, the Czech Republic and Slovakia on August 4 as sanctions prevented Moscow’s transit payments to Kyiv, Bloomberg reported. It cited a statement from Russian pipeline operator Transneft.
Brent, the global benchmark for two-thirds of the world's oil, rose to nearly $98 a barrel on the news, before dropping again. It was down 0.92 per cent to $95.76 per barrel at 8.58pm UAE time on Tuesday. West Texas Intermediate, the gauge that tracks US crude, was down 1.01 per cent at $89.84 a barrel.
"Crude prices surged after Russian oil supplies were halted to Eastern Europe," said Edward Moya, senior market analyst at Oanda.
"A simple disruption that stemmed from western sanctions that do not allow accepting transit fees from Moscow reminded us of how quick the oil market can tighten.
"Whatever crude demand destruction that occurs from a weakening global economy, won’t be able to drag down oil prices much lower given how low the supply outlook remains."
Oil prices have remained volatile this year. Brent touched about $140 barrel in March following Russia’s invasion of Ukraine and the subsequent sanctions by the US and the UK on the import of Moscow’s crude.
However, oil fell in the last few months as concerns grew over the possibility of a looming recession hitting fuel demand globally.
In July, the International Monetary Fund lowered its growth forecast for the global economy to 3.2 per cent this year, from its previous forecast of 3.6 per cent in April amid Russia’s war in Ukraine, high inflation and the Covid-19 pandemic.
The 23-member Opec+ super-group of oil producers last week agreed to boost output modestly by 100,000 barrels per day next month amid a slowdown in the global economy.
An agreement on the Iran nuclear deal could ease pressure on oil supply, Mr Moya said.
Nuclear deal talks in Vienna have concluded, with the EU suggesting a final text will now be put forward for the US and Iran to either agree on or reject the deal.
"Much attention is falling on Iran nuclear deal talks and that could be a wild card in providing much-needed supplies," Mr Moya said.
"Iran is also looking at the US political situation and might not be confident that even if a deal is revived that it will hold up if a Republican wins the 2024 presidential election, especially if it is former President [Donald] Trump."
On the demand side, the International Energy Agency trimmed its global oil demand forecast for this year and the next as the worsening macroeconomic outlook and fears of a recession dampen market sentiment.
Oil demand is now expected to expand 1.7 million bpd in 2022 (down slightly from the IEA's forecast of 1.8 million bpd in June) and 2.1 million bpd in 2023 (compared with the 2.2 million bpd June forecast), to reach 99.2 million bpd and 101.3 million bpd, respectively, the IEA said in its Oil Market Report last month.
"Crude prices should eventually find a home above the $100 level, especially in the winter when the SPR release stops and if China demand roars back," Mr Moya said.