Oil Gains As Ukraine Pipeline Huts

Oil Gains As Ukraine Pipeline Huts

Bloomberg Oil climbed as traders waited to see whether a key crude pipeline from Russia to Europe would resume flows, and compared industry estimates that pointed to an increase in US inventories last week.

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West Texas Intermediate held above $90 after Russia spokesman Transneft said Ukraine halted flows through the southern section of the Druzhba pipeline toward Hungary, the Czech Republic and Slovakia on August 4 as sanctions blocked payment of Moscow's transit fee. The Czech pipeline operator Mero CR said it expected services to be restored within a few days.

According to people familiar with the data, the American Petroleum Institute showed a 2.2 million barrel increase in US crude stockpiles last week, including a build at the key storage hub in Cushing, Oklahoma. Official figures will be released later on Wednesday.

The price of crude hit a six month low last week on signs that demand was weakening, especially for US gasoline, as investors fretted that a global slowdown is imminent. There are still bullish risks for crude as Russia's invasion of Ukraine drags on and sanctions against Moscow go up. Producers group OPEC have warned that spare capacity has sunk to extremely low levels.

There is a chance that the oil s recession may have ended, said Zhou Mi, an analyst at the Chaos Research Institute in Shanghai. The Druzhba halt seems to be an issue on the Ukrainian side, not Russia, so the impact is limited, he added.

The disruption to oil flows along part of the Druzhba network - even if resolved in the coming days - will add to energy concerns in Europe as the continent heads towards what could be an especially challenging winter. Russia has already clamped down on gas deliveries to the region, raising the specter of shortages and recession, and the European Union wants to stop imports of seaborne crude and fuels as it tightens sanctions against Moscow.

Key differentials have narrowed sharply as oil markets remain in backwardation, a bullish pattern, signalling an easing of tightness. Brent's prompt spread was the widely watched gap between its two nearest contracts - was $1.42 a barrel in backwardation, down from more than $3 a month ago.

In the last few months, crude has declined as central banks like the Federal Reserve tighten monetary policy to keep pace with price gains. The headline US consumer inflation stayed elevated in July, while the core reading was shortened, according to a report later Wednesday. In Asia a consumer inflation in China went up last month to the highest level in two years, according to a release.

Oil investors are in line for a double update on the global market outlook on Thursday. The producers group, the Organization of Petroleum Exporting Countries, and the International Energy Agency, representing key industrialized consumers, are set to issue monthly snapshots.

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