Brent gains on US rate cut optimism

The front-month ICE Brent contract has gained by $0.42/bbl on the day from Friday, to trade at $67.96/bbl at 09.00 GMT.

IMAGE: Crude oil storage tanks. Getty Images

Upward pressure:

US Federal Reserve’s (Fed) chairman Jerome Powell’s speech at Jackson Hole on Friday has provided a boost to the larger commodity complex, including Brent crude’s price.

Powell’s remarks have raised hopes of a 25-basis point interest rate cut in September, according to market analysts.

“In the near term, we may see the oil market benefit following Fed Chair Jerome Powell’s Jackson Hole speech, which was largely dovish and provided a boost to most risk assets,” said two analysts from ING Bank.

Lower interest rates in the US can boost demand, making dollar-denominated commodities like oil cheaper for holders of other currencies.

“The market is pricing in more than an 85% probability that the Fed cuts interest rates by 25bp in September, up from around 72%,” the two ING analysts added.

Downward pressure:

The US-imposed 25% secondary tariffs on India for its purchase of Russian oil are set to take effect on 27 August. This news has put some downward pressure on Brent’s price today.

“There appears to be little progress in trade talks between India and the US, since the US announced the tariff earlier in the month,” ING Bank’s analysts remarked.

White House trade adviser Peter Navarro has criticised India’s imports of Russian crude, saying they are effectively financing Moscow’s war in Ukraine.

“If India continues to buy Russian oil despite the 25% secondary tariff, it does little to change the market outlook. Instead, it only confirms the bearish outlook for oil prices,” ING’s analysts said.

By Aparupa Mazumder

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