Brent oil stagnates as market weighs supply disruption, recession fears

A view of the Phillips 66 Company’s Los Angeles Refinery (foreground), which processes domestic and imported crude oil into gasoline, aviation, and diesel fuel, and storage tanks for refined petroleum products in the Kinder Morgan Carson Terminal (background), at sunset in Carson, California, US, March 11, 2022. REUTERS/Bing Guan

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SINGAPORE, July 5 (Reuters) – Brent oil prices changed little on Tuesday, wiping out previous gains of $1 as investors weighed in on concerns about delivery, highlighted by a possible production cut in Norway, and concerns about a possible global recession that would reduce fuel demand.

Brent oil futures before the September settlement were up 0.2%, or 22 cents, to $113.73 a barrel at 0432 GMT.

US West Texas Intermediate crude climbed $1.95, or 1.8%, to $110.38 a barrel, from Friday’s close. There was no settlement for WTI on Monday due to the national holiday of Independence Day in the United States.

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“While there are demand concerns given the bleak macro outlook, the market is expected to remain tight for the rest of the year,” Warren Patterson, ING’s head of Commodity Strategy, wrote in a note.

On Tuesday, Norwegian offshore workers started a strike that will cut oil and gas production, the union that led the union action told Reuters. read more

The strike is expected to cut oil and gas production by 89,000 barrels of oil equivalent per day (boepd), of which gas production makes up 27,500 boepd, according to Norwegian producer Equinor (EQNR.OL).

Oil production will be cut by as much as 130,000 barrels per day from Wednesday, the country’s oil and gas association predicted on Sunday. That would be equivalent to about 6.5% of Norwegian production, according to a Reuters calculation.

Data showing that activity in the service sectors of the economies of Japan and China, one of the world’s largest oil importers, is improving, provided some support for prices on Tuesday.

Caixin’s China Purchasing Managers Index for Services (PMI) fell for three months in June and grew at its fastest pace in nearly a year, while Jibun Bank Japan’s latest PMI last month showed the fastest rate of growth since October 2013.

But overall, investors are increasingly concerned about demand amid a broad tightening in global financial conditions, as the US Federal Reserve fights rampant inflation with rapid rate hikes.

Interest rate hikes are also looming in Australia and South Korea as authorities try to curb inflation. In South Korea, inflation reached its 24-year high in June, further fueling concerns about slowing economic growth and oil demand.

“Oil is still struggling to break out of the current recessionary slump as the market turns from inflation to economic despair,” Stephen Innes of SPI Asset Management said in a note.

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Reporting by Florence Tan and Muyu Xu; Editing by Shri Navaratnam and Christian Schmollinger

Our Standards: The Thomson Reuters Trust Principles.

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