Oil prices dipped 2% on Tuesday after rising more than $5 a barrel the previous session, pulled down by concerns that an economic downturn could reduce demand for oil, but tight supply and a lower currency offset some of the losses.

Brent oil futures for September delivery declined $1.62, or 1.5 percent, to $104.65 a barrel as of 11:53 a.m. GMT. On Monday, the contract surged 5.1 percent, the highest percentage rise since April 12.

August WTI oil futures slid $1.87, or 1.8 percent, to $100.73 a barrel. On Monday, the contract rose 5.1 percent, the highest percentage rise since May 11.

The August WTI contract ends on Wednesday, while the September contract, which is more frequently traded, was at $97.66 a barrel, down $1.76, or 1.8 percent.

According to the Financial Times, the International Monetary Fund warned on Tuesday that any Russian move to cease providing Europe with gas would cause economic losses of more than 5% in the Czech Republic, Hungary, Slovakia, and Italy over the following year.

According to a letter seen by Reuters, Russia’s Gazprom has informed its European clients that it cannot guarantee gas deliveries due to “extraordinary” conditions. 

Prices were also influenced by expectations for a rise in US crude inventories.

According to an early Reuters poll, crude and distillate supplies in the United States may have increased last week, but gasoline inventories are expected to have decreased. 

Oil prices have been swinging back and forth between supply concerns as Western sanctions on Russian crude and fuel supplies as a result of the Ukraine conflict have disrupted trade flows to refiners and end-users, and rising concerns that central bank efforts to tame surging inflation may trigger a recession, reducing future fuel demand.

“Prices climbed aggressively as the tight state of affairs on the supply front shifted back into the spotlight,” said Stephen Brennock of brokerage PVM.

Last week, US President Joe Biden visited leading oil exporter Saudi Arabia, trying to reach an agreement on an increase in oil output to help down petrol costs.

Officials from Saudi Arabia, the de facto head of the Organization of Petroleum Exporting Countries (OPEC), did not, however, provide unequivocal guarantees that a rise in production was achieved.

The foreign minister of the Kingdom of Saudi Arabia said on Tuesday that there is no scarcity of oil in the market, but rather a lack of refining capacity, necessitating further investment in capacity to convert crude oil into other oil products. 

“As of today, there is no shortage of oil on the market. There is also a shortage of refining capacity, which is a problem, therefore we need to invest more in refining capacity “In Tokyo, Foreign Minister Prince Faisal bin Farhan Al Saud told reporters.

On Tuesday, oil prices were supported by a weaker US dollar, which was trading around a one-week low, making greenback-dominated crude marginally cheaper for purchasers holding other currencies.

Source: Reuters

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