Brent gains over $1/bbl following upward revision of US GDP

The front-month ICE Brent contract moved $1.29/bbl higher on the day, to trade at $87.04/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Brent futures gained over $1/bbl, backed by expectations that the US Federal Reserve (Fed) will cut interest rates sooner than anticipated, boosting oil demand growth in the country. Lower interest rates tend to boost oil demand growth as it improves risk appetite for dollar-denominated commodities like oil.

The US Commerce Department’s Bureau of Economic Analysis (BEA) revised the Gross Domestic Product (GDP) growth rate for January-March to 1.4%, slightly up from the previously estimated growth rate of 1.3%. The revision has put an upward pressure on oil prices.

Oil market investors are now awaiting the release of US inflation data for June to get more insight into the country's oil demand growth. The data, scheduled for release later today, will help understand the Fed’s likely approach to interest rate cuts this year.

“Sentiment in the broader financial markets is in a holding pattern ahead of a key US inflation report due out later today,” VANDA Insights’ founder and analyst Vandana Hari said.

Oil investors are also waiting for the outcome of the presidential election in Iran. Analysts are concerned that a more hard-line president could further strain relations between the Middle East and the West, potentially triggering additional sanctions on Iranian oil.

Downward pressure:

A rise in US crude stockpiles capped gains in Brent futures today.

Commercial crude oil inventories in the US rose by 3.59 million bbls to 461 million bbls in the week ending 21 June, according to data from the US Energy Information Administration (EIA).

Oil market analysts were expecting a 2.8 million-bbl-draw, according to two analysts from ING Bank.

“The unexpected rise in US inventories last week raised alarm bells, with the market expecting a drawdown as the US summer driving season begins,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked.

By Aparupa Mazumder

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