DTN Oil

WASHINGTON (DTN) -- Oil futures traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved mixed early Monday following last week's announcement Russia's energy company Gazprom plans to temporarily throttle a key natural gas pipeline to the European Union in a move that sent European gas futures to record highs at the start of the week and deepened concerns over inflation and recession for the 27-nation economic bloc.

Soaring prices for natural gas and electricity forced some industrial operators in Europe to announce shutdowns this summer, including energy-intensive production of metal, pulp, and paper. The industrial shutdowns ahead of the winter months could spell an inflation disaster for the European continent, with consumer prices already rising at a record pace of 8.9%. Dutch Title Transfer Facility gas futures spiked over 12% on Monday to euro288/MWh, up 50% since the beginning of the summer, while year-ahead baseload power prices in Germany and France climbed to a new record of euro775/MWh and euro624/MWh, respectively.

Volatility in European energy markets follow an announcement from Gazprom that it plans to shut down the Nord Stream gas pipeline for three days between Aug. 31 and Sept. 2 for "maintenance." Once maintenance is completed Russia says gas flow will be restored to the current level of 33 million cubic meters per day which is around just 20% of the capacity.

The temporary closure wasn't previously announced and comes just weeks after the 760-mile Nord Stream pipeline, which connects Russia's prolific Siberian gas fields with Germany under the Baltic Sea, was shut for 10 days of annual maintenance in July. After the work ended, Gazprom restored gas flow, but only to 40% of the pipeline's capacity. It later cut flows to 20% of capacity, saying it couldn't maintain normal flow without a turbine that the German government claims Russia is refusing to take. At this point, Nord Stream pipeline operates with a single functioning turbine at the Portovaya compressor station.

Markets are now more skeptical than ever that Russia will maintain its European gas flows this winter that is pushing prices higher with intermittent interruptions seen before completely cutting off exports. EU gas storages are now around 76% full, broadly in line with their historical average for this time of year. Germany, at around 78%, has recently filled storage faster than anticipated. However, even full storage might not be enough to see the region through the winter if Russian flows stop completely.

Against this backdrop, leaders of the United States, United Kingdom, France, and Germany resumed their efforts to revive the 2015 nuclear accord with Iran after European negotiators sent a final draft of an agreement to Tehran. According to wire services, Tehran has dropped one of its "red line" demands, removing its demand that the Iranian Revolutionary Guard be removed from the U.S. terrorist list, which had proved a major obstacle to securing an agreement.

News of the discussions dragged oil prices lower last week as the deal with Iran could see the OPEC member increase oil exports by as much as 1 million barrels per day (bpd).

Markets are somewhat 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 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.

In early trading, NYMEX September West Texas Intermediate traded little changed near $90.79 barrel (bbl) ahead of expiration Monday afternoon, with the October contract expanding its discount to $0.38 bbl. ICE October Brent futures slipped to $96.65 bbl. NYMEX September RBOB declined 1 cent to $3.0070 gallon, while the NYMEX September ULSD contract added 5.92 cents to $3.7597 gallon.

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