Brent loses momentum as market eyes on oversupply
The front-month ICE Brent contract has moved $2.02/bbl lower on the day, to trade at $70.30/bbl at 09.00 GMT.
PHOTO: Crude oil pump jacks in colour. Getty Images
Upward pressure:
Supply-related concerns due to escalating tensions in the Middle East have continued to add upward pressure on Brent crude’s price.
The Israel Defense Forces (IDF) started a ground invasion of Lebanon, with “limited, localized, targeted” raids on villages situated in the southern part of the country, IDF spokesperson Daniel Hagari said.
On Sunday, the Israeli Air Force (IAF) struck specific targets in the Yemeni port of Hodeidah, used by the Houthi armed group to transfer Iranian weapons and crude oil, the IDF claimed.
“Israel attacked oil supplies in Yemen and that gave the market a little bit of a pop,” Price Futures Group’s senior market analyst Phil Flynn remarked.
Market analysts have cautioned that any further escalation between Israel and Iran’s proxies, including the Hezbollah, Hamas and Houthi armed groups, could directly drag Iran in the conflict. This situation threatens crude flows in the region and could disrupt Iran's oil production as well.
The oil market will closely monitor the OPEC+ policy meeting scheduled for tomorrow, where the coalition is expected to discuss on production quotas and supply cut plans.
The recent weakness in oil prices has “raised questions on whether the [OPEC+] producer group will maintain its current production constraints,” ANZ Bank’s senior commodity strategist Daniel Hynes said.
Downward pressure:
The escalating risk of supply disruptions in the Middle East is being outweighed by tepid demand growth expectations coming from China – the world’s second-largest oil consumer. As a result, the sluggish oil demand growth in the country has continued to put downward pressure on Brent’s price in recent days.
Manufacturing Purchasing Managers' Index (PMI) reading in China reached 49.8% in September, slightly up from 49.1% in August, the country's National Bureau of Statistics (NBS) reported.
China’s factory activity showed slight improvement from last month, but market analysts expected a better outcome. This news comes amid concerns that Beijing's latest economic stimulus measures may not be enough to sustain economic growth in the country.
On the supply front, prospects of production hikes from the OPEC+ group by the end of this year have prevented Brent's price from moving higher.
“[Brent] crude remains rangebound near recent lows... with traders instead focusing on the prospect of additional and currently unwanted supply,” analysts from Saxo Bank said.
By Aparupa Mazumder
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