LONDON: Oil prices extended gains on Monday, boosted by mounting concerns over gas supply from Russia and a lower dollar, offsetting demand fears brought on by a possible recession and China lockdowns.
Brent crude futures for September settlement rose by $4.44, or 4.4%, to $105.60 a barrel by 1427 GMT, having gained 2.1% on Friday.
US West Texas Intermediate (WTI) crude futures for August delivery were up $4.10, or 4.2%, at $101.69 after rising by 1.9% in the previous session.
Russian gas export monopoly Gazprom declared force majeure on gas supplies to Europe to at least one major customer, according to the letter seen by Reuters, potentially ratcheting up the continent’s supply crunch.
“Brent crude will find support at the end of the week if Russia does not turn the gas back on to Germany after Nord Stream 1 maintenance,” said OANDA senior analyst Jeffrey Halley.
A trading source said the letter concerned supplies through the Nord Stream 1 pipeline, a major supply route to Germany and beyond.
“At this moment, it is unclear whether gas exports from Russia towards Germany will resume,” said ABN Amro senior energy economist Hans van Cleef.
“With European leaders being determined to increase sanctions towards the Kremlin, the likelihood has increased that the Russian government will announce the next step in further cutting back gas flows towards Europe as a counter reaction.”
The US dollar retreated from multi-year highs on Monday, supporting prices of commodities ranging from gold to oil. A weaker dollar makes dollar-denominated commodities more affordable for holders of other currencies.
Both Brent and WTI last week registered their biggest weekly declines for about a month on fears of a recession that would hit oil demand.
Meanwhile, mass COVID-19 testing exercises continue in parts of China this week, raising concerns over oil demand from the world’s second-largest oil consumer.
However, supplies remain tight. As expected, US President Joe Biden’s trip to Saudi Arabia failed to yield any pledge from the top OPEC producer to boost oil supply.
Biden wants Gulf oil producers to step up output to help to lower oil prices and drive down inflation.