Oil jumps on weak dollar and supply tension

A poster with crude oil written on the side of a storage tank in the Permian Basin in Menton, Loving County, Texas, United States, November 22, 2019. REUTERS/Angus Mordant

LONDON (Reuters) – Oil prices extended gains on Monday, boosted by a weak dollar and tight supplies as concerns escalated over gas supplies from Russia, offsetting demand concerns stemming from a possible recession and the shutdown of China.

Brent crude futures for September settlement rose $2.34, or 2.3 percent, to $103.50 a barrel by 1235 GMT, after rising 2.1 percent on Friday.

US West Texas Intermediate crude futures for August delivery rose $1.89, or 1.9 percent, to $99.48, after rising 1.9 percent in the previous session.

U.S. dollar

Last week, Brent and West Texas recorded their biggest weekly declines in about a month amid fears of a recession that could affect oil demand.

Russia’s gas export monopoly Gazprom has declared force majeure on gas supplies to Europe to at least one major customer, according to the letter seen by Reuters, potentially escalating the continent’s supply crisis. Read more

A trade source said the letter was about supplies via the Nord Stream 1 pipeline, a major supply route to Germany and beyond.

“Brent crude will find support at the end of the week if Russia does not return gas to Germany after Nord Stream 1 maintenance,” said Jeffrey Halley, chief analyst at OANDA.

Meanwhile, mass COVID testing exercises continue in parts of China this week, raising concerns about oil demand from the world’s second-largest oil consumer. Read more

“Increasing demand concerns for another spike in COVID-19 cases in China amid a broader slowdown and resilient Russian production has weighed on oil prices recently,” Barclays said in a note.

However, we remain constructive as redirecting supplies will become more difficult as we get closer to implementing EU sanctions.

However, supplies are still scarce. As expected, US President Joe Biden’s trip to Saudi Arabia failed to achieve any pledge from the largest producer in the Organization of the Petroleum Exporting Countries (OPEC) to increase the supply of oil. Read more

Biden wants Gulf oil producers to increase production to help lower oil prices and lower inflation. Read more

(Noah Browning reports) Additional reporting by Sonali Paul in Melbourne and Florence Tan in Singapore Editing by David Goodman

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