Brent gains as supply tightness counters stronger US dollar

The front-month ICE Brent contract has moved up by $0.17/bbl on the day from Friday, to trade at $85.94/bbl at 09.00 GMT.

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Upward pressure:

Market sentiment has been influenced by recent war developments in the Middle East and Ukraine-Russia, which have kept traders on edge.

Talks of a ceasefire in the Middle East have been subdued after Israel raided two more hospitals in Gaza on Sunday. Many market participants speculated whether there could be a ceasefire last week.

Over the weekend, Moscow launched at least 57 drones and missiles targeting Ukraine’s capital Kyiv in retaliation for Ukrainian missile strikes on Russian oil infrastructure earlier this month.

"Disruptions to oil refineries in Russia have added pressure on fuel markets, leading to rising demand for available crude oil cargoes. Approximately 12% of Russia’s total oil processing capacity was impacted," ANZ Bank senior commodity strategist Daniel Hynes said.

Global availability of crude cargoes could also see increased competition because Indian refiners now refuse to import oil carried by US-sanctioned Sovcomflot tankers.

Downward pressure:

A strengthening US dollar has limited further upside for Brent.

The recent rise in US interest rates, coupled with the Federal Reserve's decision to maintain rates at its latest Federal Open Market Committee meeting, has bolstered the dollar's value. A stronger dollar increases borrowing costs for non-dollar currency holders, and can dampen demand for dollar-denominated commodities like Brent.

ING Bank analysts noted lower Brent futures buying last week due to a combination of factors including profit-taking at higher prices and the impact of a stronger US dollar, resulting in Brent's price sliding back towards the $85/bbl mark.

By Tuhin Roy

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