Brent breaks below $80/bbl on growing demand concerns

The front-month ICE Brent contract moved $1.14/bbl lower on the day, to trade at $79.62/bbl at 09.00 GMT.

PHOTO: An oil pump jack. Getty Images

Upward pressure:

Brent’s price drew some support amid growing geopolitical risks in the Middle East.

Oil supply concerns escalated after a missile launched by the Lebanon-based Hezbollah militia struck a football ground in the Israeli-occupied Golan Heights on Saturday, killing 12 people including children. This incident was followed by Israel vowing retaliation against the Iran-backed armed group.

Turkey’s President Recep Tayyip Erdogan said on Sunday that the country could potentially invade Israel, as it had done in the past in Libya and in Nagorno-Karabakh, according to a Reuters report. This news has escalated tensions in the Middle East.

"We must be very strong so that Israel can't do these ridiculous things to Palestine. Just like we entered Karabakh, just like we entered Libya, we might do similar to them," Reuters cited Erdogan as saying during a meeting.

Oil market participants are now waiting for more cues from Venezuela after the country's electoral authority announced the current President Nicolas Maduro’s victory for a third term with 51% of the vote, despite exit polls indicating an opposition victory. Venezuela is a key member of the OPEC group.

The US government has said that it would consider putting more sanctions on Venezuela if the country fails to release its voting data, two analysts from ING Bank remarked.

“Israel, responding to Hezbollah attacks in Lebanon and a disputed election in heavy oil producer Venezuela, are just a few of the risks to start this week,” Price Futures Group’s senior market analyst Phil Flynn said.

The OPEC+ meeting this week will be in focus, however, no major changes in the group's output policy are expected.

Downward pressure:

Brent’s price slipped below $80/bbl for the first time since June due to lingering demand concerns from China.

China’s oil consumption is important for the global oil market balance as it makes up a major portion of the global oil demand growth.

“Weak Chinese demand remains the driver for the oil market, following a raft of fairly bearish data in recent weeks,” two analysts from ING Bank noted.

The oil market will look out for China’s manufacturing PMI for July, a key data to analyse growth in the country's manufacturing sector.

“Brent crude slipped below $80… amid concerns about demand in China while shrugging off the risk of conflict escalation in the Middle East,” analysts from Saxo Bank said.

Oil traders are also focused on this week’s US Federal Reserve's (Fed) meeting to discuss interest rate policy for this year. While the market expects a cut in September, higher interest rates can suppress oil demand as it makes the greenback stronger for dollar-denominated commodities like oil.

By Aparupa Mazumder

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