DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange reversed higher in afternoon trade Tuesday helped by a sharp drop in the U.S. dollar index and rallying stock market as investors reassessed risks of a recession amid better-than-expected earnings reports from top U.S. companies and an improved macroeconomic outlook.

Stocks on Wall Street staged a remarkable rebound on Tuesday, sending Dow Jones Industrials more than 700 points higher and the S&P 500 up 2.7% late afternoon on the back of better-than-expected earnings results for the second quarter. Oilfield services provider Halliburton rose 0.9% after its profit and revenue topped forecasts. Likewise, health care giant Johnson and Johnson added 0.6% to beat market expectations. A potential recession was practically invisible by companies reporting earnings today, shifting sentiment in the broader markets to one of optimism.

Further spurring gains in financial markets, Reuters reported Russian energy giant Gazprom may indeed restart Nord Stream 1, a key natural gas pipeline to Europe, on Thursday (July 21) in line with a routine maintenance schedule. The pipeline, which accounts for one-third of Russian gas exports to the European Union, was halted for 10 days of annual maintenance on July 11. Sources familiar with operations told Reuters the pipeline was expected to resume operation on time but at less than its capacity of some 160 million cubic meters per day.

Speculation had swirled in recent days as to whether Russia would restart the pipeline after Gazprom declared force majeure on several European natural gas buyers citing "past and current shortfalls in gas deliveries," according to German utility Uniper. The European Commission said this morning that it did not expect the pipeline would be back online.

The restart of the major gas pipeline would be welcomed news for the European Union as it battles a record-breaking heatwave that has gripped much of the continent in recent days, pushing its energy systems to the limit.

At least five EU countries have declared states of emergency or red warnings as wildfires, triggered by extreme temperatures, burn across France, Greece, Portugal, and Spain. In the past week, more than 31,000 people have been displaced from their homes because of wildfires in the Gironde region of southwestern France.

For energy systems, scorching heat means a greater threat for deeper disruptions for power generation, as nuclear operators struggle to keep their plants cool and natural gas stations run less efficiently. With higher temperatures, supply may not be sufficient to meet demand in addition to restocking required ahead of next winter.

German day-ahead power prices rose to 397 euros per megawatt-hour, the highest since March, while the French equivalent climbed to the highest since April at 521 euros.

Also on Tuesday, oil traders positioned ahead of a weekly release of U.S. inventory report from the American Petroleum Institute scheduled for 4:30 PM ET, followed by government data from U.S. Energy Information Administration Wednesday morning. Analysts expect U.S. commercial crude oil inventories to have climbed 600,000 barrels (bbl) during the week-ending July 15 following a 3.3 million bbl build in the prior week. At 427.1 million bbl, oil inventories currently stand 5% below the five-year average. Gasoline stocks likely increased by 200,000 bbl from the previous week, while distillate inventory is expected to have risen by 1.2 million bbl.

At settlement, West Texas Intermediate August contract advanced $1.62 to $104.22 bbl, with the next-month delivery WTI expanding its discount to $3.48 bbl. Brent crude futures for September delivery climbed above $107 bbl, up $1.08 bbl. NYMEX August RBOB futures advanced 4.32 cents to $3.3075 gallon, while front-month ULSD fell 2.87 cents to $3.6268 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com