Oil steady as economic slowdown worries offsets tight supplies

By Scott DiSavino

NEW YORK (Reuters) -Oil prices were little changed on Tuesday as the market balances fears that an economic slowdown will hit oil demand against tight supply and a weaker U.S. dollar.

Brent futures for September delivery fell 14 cents, or 0.1%, to $106.13 a barrel by 10:48 a.m. EDT (1448 GMT), while U.S. West Texas Intermediate (WTI) crude for August fell 27 cents, or 0.3%, to $102.33.

The August WTI contract expires on Wednesday. The more actively traded September contract was down 38 cents to $99.04 a barrel.

On Monday, both front-month contracts rose by over 5% in the biggest daily percentage gain for Brent since mid-April and WTI since mid-May.

Oil prices have whipsawed between concerns over supply as Western sanctions on Russian crude and products over the Ukraine war disrupt trade flows, and worries that central bank efforts to tame inflation may trigger a demand-destroying recession.

China stocks closed lower, with foreign investors dumping the most shares in more than a month, as rising COVID-19 cases and fresh property woes clouded the prospect of an economic recovery.

New U.S. home-building activity fell to a nine-month low in June.

The International Monetary Fund warned that any Russian action to stop supplying Europe with natural gas would trigger economic contractions of more than 5% over the next year in the Czech Republic, Hungary, Slovakia and Italy, the Financial Times reported.

Russian energy company Gazprom (MCX:GAZP) PAO told customers in Europe it cannot guarantee gas supplies because of "extraordinary" circumstances, according to a letter seen by Reuters.

Expectations for an increase in U.S. crude inventories also weighed on prices. Analysts polled by Reuters forecast crude inventories rose by 0.3 million barrels last week. [EIA/S] [API/S]

The American Petroleum Institute (API), an industry group, will issue its inventory report at 4:30 p.m. EDT (2030 GMT) on Tuesday. The U.S. Energy Information Administration (EIA) reports at 10:30 a.m. EDT (1430 GMT) on Wednesday.

Oil prices, however, got some support from a decline in the U.S. dollar to a two-week low against a basket of other currencies. A weaker dollar increases demand for oil by making the fuel less expensive for buyers using other currencies.

Last week, U.S. President Joe Biden visited top oil exporter Saudi Arabia, hoping to strike a deal on an oil production boost to tame fuel prices.

However, officials from Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC), did not give clear assurances an output increase was secured.

The kingdom's foreign minister said he saw no shortage of oil in the market, just a lack of oil refining capacity.

Saudi Arabia's crude exports slipped in May to a four-month low at 7.050 million barrels per day (bpd).

Russian President Vladimir Putin visited Tehran for talks with Iranian Supreme Leader Ayatollah Ali Khamenei, the Kremlin leader's first trip outside the former Soviet Union since Moscow's Feb. 24 invasion of Ukraine.

The National Iranian Oil Company (NIOC) and Gazprom signed a memorandum of understanding worth around $40 billion.