Brent flat as concerns about China’s economic growth counter supply cuts

The front-month ICE Brent contract has inched down $0.01/bbl on the day, to trade at $88.45/bbl at 09.00 GMT.

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Upward pressure:

The recent surge in Brent futures has been primarily driven by expectations of more supply cuts in the coming days. Oil analysts expect both Saudi Arabia and Russia to extend voluntary output cuts into October to avoid the risk of a sell-off in the oil market.

“Sentiment in the oil market remains constructive. [Brent’s] Price direction in the immediate term will be dictated by what Saudi Arabia and Russia decide to do with their supply cuts,” two analysts from ING said in a note.

“Given market expectations, it is unlikely that the two producers would stray away from an extension,” they further added.

Downward pressure:

Downward pressures acting on Brent futures this week include concerns about the slow pace of economic recovery in China. Market analysts think that the world’s second-largest economy has shown a disappointing recovery from the pandemic.

Growth in demand for commodities like oil has been bleak in China, despite the country pledging to roll out economic stimulus to drive consumption in ten different sectors. Moreover, a recent private-sector survey in China showed that the country’s services activity in August grew at the slowest pace in eight months, Reuters reported.

“Oil prices may be sputtering on Chinese economic slowdown concerns,” said Price Futures Group’s market analyst Phil Flynn.

By Aparupa Mazumder

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