Brent loses ahead of US Fed policy meeting

The front-month ICE Brent contract has shed $0.85/bbl on the day from Friday, to trade at $88.95/bbl at 09.00 GMT.

PHOTO: Oil pumpjacks during sunset. Getty Images

Upward pressure:

Brent futures remained well supported amid growing supply concerns due to the ongoing Israel-Hamas war.

Israel’s Prime Minister Benjamin Netanyahu has warned of a “long and difficult war” after the country commenced the "second stage" of the combat with a ground invasion in northern Gaza on Saturday. The country aims to take full control of the base camps that are run by Hamas militants in Northern Gaza.

This conflict can “potentially morph into one of the most sinister calamities in decades,” said SPI Asset Management’s managing partner Stephen Innes.

Meanwhile, Israel’s ground assault on the Gaza Strip has been fiercely condemned by the neighbouring Arab nations including Iran and Lebanon. This has again raised the question about Iran’s involvement in the Middle Eastern conflict, analysts said.

Last week, Iran’s foreign minister Hossein Amirabdollahian warned at an emergency special session at the United Nations (UN) that if Israel continues this conflict against Hamas, then the “US will not be spared from this fire,” Reuters reported.

“With the increased likelihood of a direct confrontation involving Iran or Hezbollah [militant group based in Lebanon], one could argue that crude oil prices should be substantially higher,” Innes added.

Downward pressure:

Oil analysts are awaiting the outcomes of the US Federal Reserve (Fed) policy meeting this week, which could give cues about the interest rate cycles.

Even though the oil market analysts expect the US Fed to keep interest rates unchanged, Brent futures stand a chance to lose further if Fed officials decide to hike the interest rate slater this year.

Higher interest rates make the greenback stronger, which in turn could reduce demand for dollar-denominated commodities such as crude oil.

Meanwhile, Israel’s counter strike on Gaza has prompted world leaders to encourage an immediate ceasefire. Brent futures also felt some downward pressure as no direct supply outage due to the war has occurred yet.

“The notion that as long as the conflict remains confined to Gaza, there isn't an immediate and visible threat to the oil supply have restrained prices,” added Innes.

By Aparupa Mazumder

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