Brent inches lower as demand concerns linger

The front-month ICE Brent contract has inched $0.20/bbl lower on the day, to trade at $73.32/bbl at 09.00 GMT.

PHOTO: Oil barrels along with the world map. Getty Images

Upward pressure:

Brent’s price found some support after the American Petroleum Institute (API) reported a sizeable draw in US crude stocks, easing some demand growth fears in the world’s largest oil consuming nation.

Crude oil inventories in the US declined by about 7.4 million bbls in the week that ended 30 August, the API reported. The drop in crude stocks was “constructive”, two analysts from ING Bank remarked.

Brent futures gained additional support following a news report which stated that OPEC+ is planning to extend the ongoing production cuts, analysts said. “The report brought some relief to [oil] markets,” ANZ Bank’s senior commodity strategist Daniel Hynes said.

Four sources told Reuters that the Saudi Arabia-led coalition is discussing delaying the gradual oil output increase scheduled to commence in October, after Brent’s price plunged lower than the $75/bbl mark.

“The oil balance is in surplus through 2025 (assuming OPEC+ increases supply) and so continuing cuts into 2025 might make sense,” ING Bank’s analysts said.

Downward pressure:

Oil prices have been under pressure this week due to demand concerns from the US and China.

Manufacturing Purchasing Managers' Index (PMI) readings in China and the US came in at 49.1% and 47.2% in August, respectively. These figures fell short of market expectations, prompting concerns of a slowdown in factory activity, analysts remarked.

“Concerns over weaker demand returned to drive [oil] prices lower on the close,” Hynes said, “These concerns were triggered earlier this week by further weak economic data [from China and the US],” he added.

A PMI reading below 50 typically indicates weak economic health and a contraction in the manufacturing sector, which includes production, inventory levels, new orders, etc. It also highlights demand growth concerns, ultimately weighing down on prices of commodities like oil.

“Weak demand remains the key concern for the oil market,” ING Bank’s analysts remarked.

By Aparupa Mazumder

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