Brent futures decline further on demand woes

The front-month ICE Brent contract has lost $2.64/bbl on the day, to trade at $85.63/bbl at 09.00 GMT.

PHOTO: An oil pumping unit. Getty Images

Upward pressure:

Tension between Israel and Hamas has taken a new turn overnight after Yemen-based militant group Houthi joined the conflict to back Palestine.

The group launched missile and drone attacks from Sanaa on Tuesday at Israel as an act of retaliation to Israel’s refusal for a ceasefire in Gaza, Reuters reported citing Houthi spokesperson Yahya Saree in a televised statement.

This news has rekindled supply concerns in the oil market because Houthi’s attack poses a direct threat to leading global oil producer Saudi Arabia. The shortest flight route for any drone or missile launched from Yemen to Israel crosses over the western part of Saudi Arabia which is closer to the Red Sea.

“Geopolitical risks remain and that seems to be offsetting some of the record production levels that are coming from the US,” said OANDA’s senior market analyst Ed Moya.  

Downward pressure:

Weak demand projections have put a lid on Brent futures’ gains this week. China’s underwhelming purchasing managers’ index (PMI) figures in October sparked concerns about a lack of demand in the world’s second-largest crude oil consumer.

“Disappointing manufacturing activity in China and US consumer confidence dropping to a five-month low in October raised worries about the prospects for fuel consumption,” said SPI Asset Management’s managing partner Stephen Innes.

Moreover, Brent prices came under pressure after US commercial crude inventories gained 1.35 million bbls in the week ended 27 October, according to the American Petroleum Institute (API) data cited by Trading Economics.

Meanwhile, oil investors will closely follow the US Federal Reserve’s (Fed) Federal Open Market Committee (FOMC) meeting that will conclude today. Investors are waiting for fresh cues on the US interest rate hike cycle.

Higher interest rates lead to a stronger US dollar against other currencies. This can potentially curtail demand for dollar-denominated commodities such as oil.

By Aparupa Mazumder

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