Brent gains as supply shortage concerns drive sentiment

The front-month ICE Brent contract has moved up by $1.34/bbl on the day, to $82.80/bbl at 09.00 GMT.

PHOTO: Oil rigs. Getty Images

Upward pressure:

Brent has regained its footing with attention shifting from macroeconomic concerns to oil supply-demand dynamics.

Supply shortage worries have been exacerbated by Iraq sparking a supply crunch, by OPEC and Russia's forthcoming production cuts, and by an expected rise in Chinese fuel demand during the upcoming five-day Golden Week holidays.

The Kurdish and Iraqi governments have been at odds over oil exports from northern Iraq for the past month, and four sources have told Reuters that there are “few concrete signs” that the 450,000 b/d of Kurdish supply will resume any time soon.

According to Bloomberg, European refineries have been experiencing crude oil input shortages since Iraq halted supplies of Kurdish crude. Since Russia invaded Ukraine last year, European refiners have turned more to Iraqi crude after to replace Russian product. The two countries' crude grades have similar densities and sulphur contents.

“Earlier today, a couple of tankers gave up after waiting almost a month for Iraqi Kurdish oil," OANDA analyst Ed Moya wrote in a note published on Monday. "This is a reminder that the oil market is going to remain sensitive to replacing the sour crude it was getting from Russia. Not all crude grades are equal and can easily replace each other,” Moya added.

Downward pressure:

Both the US Federal Reserve and the European Central Bank (ECB) are expected to raise their key interest rates at policy meetings next week. Investors are wary of central bankers' comments on interest rates and hike signals can contribute to keep Brent in check.

By Konica Bhatt

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