Brent gets a tailwind from OPEC+ production cuts

The front-month ICE Brent contract has moved up by $0.70/bbl on the day, to $79.15/bbl at 09.00 GMT.

PHOTO: Flags of OPEC+ countries. Getty Images

Upward pressure:

Brent has extended its gains as concerns over tightening global supply have overshadowed uncertainty about US macroeconomic conditions.

OPEC+'s voluntary output cuts of 1.16 million b/d went into effect on Monday and will last through 2023. The alliance previously announced a 2 million b/d cut in output last October, bringing its total output reduction to 3.66 million b/d this year.

A "significant recession" in the US could cause OPEC to intervene again, said SPI Asset Management’s managing partner Stephen Innes, adding that “traders are likely reluctant to aggressively short the market, especially with US data holding up for now.”

Downward pressure:

The market has been watching China's economic growth closely after it came out of Covid-19 lockdowns, particularly after it reported a drop in its April manufacturing activity. This has stifled further Brent price gains.

Investor sentiment has also been dampened by a rising interest rate environment in the US, following the collapse of First Republic Bank last week. In the past two months, three big US banks have failed, highlighting the impact of higher interest rates on the banking industry. These closures were bigger than the 25 banks that folded in 2008, reported The New York Times.

The US Federal Reserve (Fed) is expected to further raise its benchmark interest rate by 25 basis points at this week's policy meeting, despite growing concerns about a US recession. Traders will closely monitor the central bank's remarks on the state of the US economy and will look for clues on the future direction of interest rates.

By Konica Bhatt

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