Brent falls on oversupply fears but heads for 4% weekly gain
Front-month ICE Brent has slipped lower by $1.75/bbl on the day, to $74.78/bbl at 09.00 GMT.
PHOTO: Aerial view of an oil refinery and fuel storage tanks in Texas, US. Getty Images
Upward pressure:
Energy Intelligence agency Wood Mackenzie has forecast that China will consume around 1 million b/d of the total global demand growth this year. Wood Mackenzie estimates total global oil demand to rise by 2.6 million b/d this year. Meanwhile, the International Energy Agency has forecast the global oil demand to rise by 2 million b/d this year, while OPEC expects a 2.3-million-b/d rise in the global oil demand.
“China’s return to normal mobility is expected to drive a strong recovery in global oil demand in 2023 from both a base and high case perspective,” Wood Mackenzie says in a note. This would drive Brent towards $89/bbl in 2023, says Wood Mackenzie’s head of macro-oils, Ann-Louise Hittle.
The US Federal Reserve’s Chair Jerome Powell has indicated that the Fed officials did consider pausing interest rate hikes as a result of the recent banking turmoil.
Downward pressure:
It is unlikely for the US to refill its Strategic Petroleum Reserves (SPR) this year, Reuters has reported citing US Energy Secretary Jennifer Granholm. This has raised fears about an oversupply situation in the US market.
When the US emergency oil reserve is refilled, it absorbs excess oil in the market, which reduces the supply. The lack of SPR capacity could cause the US crude inventories to increase and outpace demand. This could result in an oversupply in the market and drag Brent futures down.
Russia's unrelenting oil exports exacerbate the oversupply concerns. Russia has extended its production cut of 500,000 b/d through June, but its increased exports to India and China have raised questions about more cuts in future.
“The bears have been in control as many energy traders remain unconvinced that the demand will be improving enough to bring down stockpiles,” says Edward Moya, senior market analyst at OANDA.
By Konica Bhatt
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