Brent bounces back on supply tightness

The front-month ICE Brent contract has gained $0.58/bbl on the day, to trade at $84.16/bbl at 09.00 GMT.

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Upward pressure:

Concerns over tight supply have resurfaced today and helped Brent futures to gain upward momentum.

“[Crude oil] supplies are tight and are getting tighter,” said Price Futures Group’s market analyst Phil Flynn. “If you look at US crude oil inventories, they are about 1% below the five-year average for this time of year,” Flynn said in a note.

Earlier this month, Saudi Arabia and Russia pledged to extend their supply cuts into September. The move has provided support to Brent futures in recent weeks.

Moreover, the People’s Bank of China (PBoC) cut key policy rates for the second time in three months on Tuesday to support the country's economic recovery, Reuters reported. Oil traders gained some confidence after the central bank in the world’s largest crude importing nation decided to hold back monetary tightening, to drive demand growth.

“Investors find comfort in the PBoC's demonstrated willingness to leverage its comprehensive policy toolkit to steer the situation in a positive direction,” said SPI Asset Management’s analyst Stephen Innes.

Downward pressure:

Brent felt some downward pressure amid growing fears of more interest rate hikes by the US Federal Reserve (Fed). At a Federal Open Market Committee (FOMC) meeting in July, Fed officials indicated that further rate hikes are possible to combat inflation. The next FOMC meeting is scheduled to take place on 19 and 20 September.

A higher interest rate could reduce consumer spending and drive oil demand down.

Additionally, Chinese oil data has also weighed down on Brent this week. China’s total crude oil imports in July were about 43.69 million mt, down 18.8% from June, JLC reported.

By Aparupa Mazumder

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