DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange reversed higher in afternoon trade Friday following reports Gazprom, Russia's state-owned energy giant, plans to halt exports of natural gas into European Union starting Aug. 31 in a move that sent European natural gas prices to record-highs amid heightened concern over a deepening energy crisis this winter.

Natural gas flows through the Nord Stream pipeline from Western Siberia to Europe will be closed for three days at the end of the month for maintenance, according to Gazprom's statement released Friday afternoon. The company cited "complex routine maintenance" of a single functioning turbine at the Portovaya compressor station as the reason behind the closure. Gas futures at Dutch Title Transfer Facility rose as much as 9% after the announcement as traders remain skeptical over Russia's further moves over the controversial pipeline after reducing flows to just 20% of capacity this month. Gas prices posted the longest run of weekly gains this year on Friday, intensifying the pain for industries and households, and threatening to push economies into recession.

Earlier in the session, oil futures came under heavy selling pressure amid reports that multilateral talks aimed at reviving the 2015 nuclear accord with Iran entered its final stage this week after European Union sent a final draft proposal to Tehran and have received an official response. While details of the response have not been made public, Iran is said to have abandoned some of its core demands while requesting for certain guarantees from the U.S. and European Union that the deal would be not be broken again.

Analysts are divided on how much oil Iran could bring to market in the short-term should sanctions be lifted since Iran doesn't publish figures for oil production or exports. Some analysts suggest the country still has the capacity to swiftly ramp up exports to its pre-2018 level of about 2 million barrels per day (bpd), while others suggest years of underinvestment and disrepair left room for the return of only a few hundred thousand at best.

Arguably, Iran sells as much as 1 million bpd to China and other Asian countries with some of those exports rebranded and disguised as oil sold by a third country. The government's budget plan forecasts daily sales of 1.4 million bpd for the year through March 2023 despite Western sanctions.

Underlining gains for the oil complex this week is weekly inventory data from the Energy Information Administration showing U.S crude oil exports hit 5 million bpd during the week-ended Aug. 12, the highest on record, according to the midweek data, with West Texas Intermediate trading at a steep discount to international benchmark Brent making purchases of U.S. crude more attractive to foreign buyers. Redirection of Russian crude flows from the European market could be one of the reasons behind the surge in crude-oil exports from the U.S. Gulf Coast. The strong pace of crude exports along with a surprise drop in U.S. oil production sent commercial crude oil stocks tumbling by 7.1 million barrels (bbl) during the week-ended Aug. 12, compared with expectations for inventories to rise by 100,000 bbl. Wednesday's inventory data was also supportive for the gasoline complex, showing demand for motor fuel climbed to the second highest rate this year at 9.348 million bpd, up 225,000 bpd or 2.4% from the previous week. On a four-week average basis, gasoline consumption was 4.2% below last year's four-week average of 9.466 million bpd. The recent demand figures might suggest that falling prices at the gas pump, down a ninth week per EIA data, has incentivized Americans to take late summer road trips.

Other economic indicators released this week also point to steady consumer demand for purchases at stores, online and restaurants, with core retail sales, which excludes cars and gasoline, rising 0.7% in July, matching the June increase, the Commerce Department said Wednesday. The incoming data suggests Americans are maintaining their spending habits despite the highest inflation in nearly four decades.

At settlement, NYMEX September West Texas Intermediate added 27 cents to $90.77 bbl, while ICE October Brent futures gained 13 cents to $96.72 bbl. NYMEX September RBOB decreased 0.86 cents to $3.0175 gallon, while the NYMEX September ULSD contract rose 5.08 cents to $3.7005 gallon.

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