Oil drops on Druzhba pipeline restart

Transneft restarts oil flows via Druzhba; US crude inventories up more than 5 million barrels per day; US inflation data softer than expected, but Fed hike expected



Pumpjacks are seen operating in Bakersfield, California. — AP file photo
Pumpjacks are seen operating in Bakersfield, California. — AP file photo

By Reuters

Published: Wed 10 Aug 2022, 7:28 PM

Oil prices fell on Wednesday as flows on the Russia-to-Europe Druzhba pipeline resumed and after U.S. crude stocks rose far more than anticipated.

Brent crude futures were down $1.90, or two per cent, to $94.41 a barrel as of 1539GMT). US West Texas Intermediate crude futures were down $1.88, or 2.1 per cent, at $88.62.

Russian state oil pipeline monopoly Transneft has restarted oil flows via the southern leg of the Druzhba oil pipeline, RIA news agency said, citing Igor Dyomin, an aide to Transneft’s president, on Wednesday.

Ukraine had suspended Russian oil pipeline flows to parts of central Europe since early this month because Western sanctions prevented it from receiving transit fees from Moscow, Transneft said on Tuesday.

Demand fears also weighed on prices, analysts said.

“Fears of recession-induced demand destruction are the single-biggest price driver currently and the principal reason why Brent is trading sub-$100 a barrel,” said PVM analyst Stephen Brennock.

US crude oil stocks, meanwhile, rose by 5.5 million barrels for the week ended August 5, according to the US Energy Information Administration, more than the expected increase of 73,000 barrels. Refining activity also rose, as well as oil production. Analysts polled by Reuters had forecast crude inventories would rise by about 100,000 barrels.

US consumer prices were unchanged in July due to a sharp drop in the cost of gasoline, delivering the first notable sign of relief for Americans who have watched inflation climb over the past two years.

Economists polled by Reuters had forecast a 0.2 per cent rise in the monthly CPI in July.

But the Fed has indicated that several monthly declines in CPI growth will be needed before it lets up on the increasingly aggressive monetary policy tightening it has delivered to tame inflation currently running at four-decade highs.

“Inflation remains far from target ... add to all that a positive contribution from net trade and a less negative drag from inventories then the case for a third consecutive 75bp Federal Reserve rate hike in September remains strong,” said James Knightly, chief international economist at ING.

A hike could curb economic activity and, consequently, fuel demand.

Though concerns over a potential global recession have weighed on oil futures recently, US oil refiners and pipeline operators expect energy consumption to be strong for the second half of 2022, a Reuters review of company earnings calls showed. — Reuters


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