Brent bounces back on tentative Chinese demand optimism

The front-month ICE Brent contract has pared the previous session's losses by gaining $2.39/bbl on the day, to $75.67/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Brent futures drew some support from optimism over recovering Chinese oil demand. The world’s largest oil importer’s refinery throughput rose by 15% on the year in May, official data reported by Reuters has shown.

China’s oil demand is expected to increase over the remainder of 2023 at an “assured rate”, Kuwait Petroleum's chief executive Sheikh Nawaf Al-Sabah told Reuters.

“Oil might find some support as energy traders expect China’s recovery to only improve and as Wall Street doubts Fed Chair Powell will be able to deliver on his hawkish threats,” said OANDA market analyst Ed Moya.

On the supply side, a voluntary output cut by Saudi Arabia from July, and by OPEC+ as a whole from January next year, has lent some support to Brent.

OPEC said that the group’s crude oil production decreased by 464,000 b/d from April, to average 28.06 million b/d in May, according to secondary sources.

Downward pressure:

Commercial US crude inventories increased by 7.92 million bbls in the week to 9 June, when they stood at 467.12 million bbls, Energy Information Administration (EIA) figures showed this week. The weekly stock build was way bigger than the American Petroleum Institute (API) estimate of a 1.02 million-bbl build that was published a day earlier.

Global oil demand growth will slow from a record high of 2.4 million b/d this year to 860,000 b/d next year, the International Energy Agency (IEA) forecasts.

Weak economic growth prospects in the US and EU continue to put a lid on further Brent gains. While the US Federal Reserve (Fed) kept its key interest rate unchanged this month, the European Central Bank hikes its rate by 25 basis points in an effort to tame persistent inflation, but with a potential fallout of weaker purchasing power and lower fuel demand. The Fed also warned that further interest rate hikes are on the cards this year.

"Crude prices are trying to find support as the global growth outlook remains vulnerable to further shocks from aggressive rate hiking campaigns," said Ed Moya.

By Aparupa Mazumder 

Please get in touch with comments or additional info to news@engine.online