Brent crude surges on growing supply concerns

The front-month ICE Brent contract has moved $1.91/bbl higher on the day, to trade at $77.84/bbl at 09.00 GMT.

PHOTO: Oil pump jacks pictured at dusk. Getty Images

Upward pressure:

Brent’s price found a strong upward thrust from positive US data that have supported demand growth expectations in the oil market.

Crude oil inventories in the US dropped by 4.0 million bbls in the week that ended 3 January, according to the American Petroleum Institute (API) estimates. A drop in US crude stocks indicates a growth in oil demand, which can support Brent's price.

Oil gained more support due to fresh supply concerns in eastern Europe after a Ukrainian drone struck a Russian oil depot yesterday, Ukraine's military said on the Telegram messaging app.

While the market awaits a Russian retaliation, it is also preparing for stricter sanctions against Russian and Iranian oil firms, expected to come into action once President-elect Donald Trump takes his official oath at the White House later this month.

“Given that oil from Russia and Iran typically flows into the inventories of China's teapot refineries and other storage facilities, this [potential] reduction [of Russian and Iranian oil supply] is seen as a significant driver of the current tight supply dynamics in Asia,” SPI Asset Management’s managing partner Stephen Innes said.

Downward pressure:

President-elect Donald Trump is ready to reverse the latest presidential order banning the majority of the offshore oil and natural gas leases in the eastern Gulf of Mexico, the Pacific Ocean, as well as portions of the Northern Bering Sea in Alaska, several media reports suggested.

With just two weeks in office, the Biden administration’s ban on most new oil and gas drilling off the Pacific and Atlantic coasts aims at drastically reducing US oil and gas production.

However, global markets are already on track to brace the “drill, baby, drill” agenda in Trump’s second term as the US President.

“Throughout his 2024 presidential campaign, Trump vowed that, if elected, he would expand oil and gas drilling to bolster American-made energy,” Price Futures Group’s senior market analyst Phil Flynn said.

By Aparupa Mazumder

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