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New Delhi: Crude oil prices increased over 1% in early trade on Tuesday after Russian energy major Gazprom announced its plans to reduce gas supplies to Europe.

Starting  27 July, Gazprom plans to reduce gas supplies through the Nord Stream 1 pipeline to Germany to just 20% of its capacity. The move is aimed to counter the West’s efforts to corner Russia amid the war on Ukraine.

Traders expect that the cut in gas supply would encourage European countries to switch to crude oil to meet their energy requirements.

The September contract of Brent on the Intercontinental Exchange was around $106.45 per barrel, higher by 1.24% from its previous close. The September contract of West Texas Intermediate (WTI) on NYMEX rose 1.27% to $97.93 a barrel.

The rise in crude oil prices also comes on the back of a weak dollar and persistent supply risks relating to Russia, said Ravindra Rao, head of commodity research at Kotak Securities.

“Western countries are planning to put a cap on Russian crude oil price while Russian natural gas supply to Europe remains challenged. However, weighing on crude price are demand concerns amid disappointing economic data, downbeat growth forecasts and persisting virus concerns in China. Crude may struggle for direction as growth worries counter supply risks however general bias may remain weak if risk sentiment weakens again," Rao said.

Rahul Kalantri, vice president for commodities at Mehta Equities, said that Libya’s National Oil Corporation said it aimed to bring back production to 1.2 million barrels per day in two weeks, from around 860,000 barrels per day.

“If Libya restores its oil production in next two weeks could restrict gains of crude oil in the international markets. We expect crude oil prices to remain volatile this week ahead of the US Fed meeting outcome," he said.

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