Price action

West Texas Intermediate crude for September delivery
CL.1,
-0.43%
CL00,
-0.43%
CLU22,
-0.43%
rose $2, or 2.1%, to settle at $96.70 a barrel on the New York Mercantile Exchange.

September Brent crude
BRNU22,
-0.25%,
the global benchmark, rose $1.95, or 1.9%, to $105.15 a barrel on ICE Futures Europe. October Brent
BRN00,
-0.23%
BRNV22,
-0.23%,
the most actively traded contract, added $1.81, or 1.8%, at $100.19 a barrel.

Back on Nymex, August gasoline
RBQ22,
-0.35%
rose 4.9% to $3.382 a gallon, while August heating oil
HOQ22,
-0.38%
gained 1.8% to $3.5166 a gallon.

August natural gas
NGQ22,
+0.81%
gained 5.2% to $8.727 per million British thermal units, with front-month prices at their highest finish since June 10, according to Dow Jones Market Data.

Market drivers

Oil futures have retreated sharply in July, with pressure tied in part to fears that a sharp economic slowdown may be in the offing that would undercut demand.

The Federal Reserve is expected to deliver another 75 basis point rise in the fed-funds rate when it completes a two-day meeting on Wednesday. Investors worry the Fed’s aggressive tightening, an effort to rein in inflation running at its hottest in more than 40 years, could push the economy into recession.

Read: The Fed could get lucky or things might go wrong. A guide to where the economy might go from here

Oil prices are going to remain volatile this week with two major upcoming events: the Fed meeting and the U.S. jobs report, Naeem Aslam, chief market analyst at AvaTrade, told MarketWatch. Monthly U.S. employment data are due out Friday.

Both events are going to give the market “more info about oil demand and sentiment,” said Aslam.

Rising inventories for gasoline have weighed on crude, signaling that a previous jump to record prices had served to curtail demand.

Still, the futures market continues to signal tight crude supplies, with nearby contracts trading at a significant premium to later contracts. That phenomenon in Brent is largely driven by expectations that “plans for a price cap on Russian oil may have the opposite effect on oil prices than hoped for,” said Warren Patterson, head of commodities strategy at ING, in a note.

U.S. Treasury Secretary Janet Yellen has been advocating a plan that would cap the price paid for Russian oil in an effort to boost pressure on Moscow in response to the invasion of Ukraine.

“The governor of Russia’s central bank has said that Russia would not supply crude oil to any country which caps prices. Although the deputy prime minister had previously said that Russia would not supply oil if the cap was set below production costs,” Patterson said.

On the supply front, Libya’s National Oil Corp. on Saturday said crude-oil production was approaching 1 million barrels a day and could soon reach 1.2 million barrels a day.

Natural gas rally

Among energy futures, natural gas was a standout, climbing by over 5% on Nymex Monday.

Hotter-than-usual weather throughout much of the U.S. has helped to boost demand for the commodity as a power source, analysts said.

Over in Europe, prices for Dutch TTF gas futures climbed by nearly 12% to 179 euros per megawatt-hour.

Russian state-owned energy producer Gazprom said natural-gas exports through the vital Nord Stream pipeline to Germany would drop to 20% of the pipe’s capacity, down from the current 40% of capacity, The Wall Street Journal reported Monday. It blamed problems with a turbine, and the news raised new questions about Europe’s ability to meet gas demand for the winter. CNN then reported that Gazprom said flows would be further reduced as it halted another turbine for repairs.

A smaller-than-expected increase in domestic natural-gas supplies for the week ended July 15, meanwhile, led front-month U.S. natural gas to “extend upward momentum— with Sunday night’s move higher now reaching a startling” $3 per million Btus upswing in under three weeks, said Phil Flynn, senior market analyst at The Price Futures Group, in a Monday note.

“In the immediate term, the further upside appears likely ahead of August contract options expiration and final settlement midweek,” he said. The August natural-gas contract expires at the end of Wednesday’s trading session.

By early August, “a long-overdue test of support could lead to weakness as the September contract assumes the front-month role,” said Flynn.