Brent moves higher on supply concerns

The front-month ICE Brent contract gained $1.11/bbl on the day from Friday, to trade at $85.16/bbl at 09.00 GMT.

PHOTO: Oil pump jacks with the US dollar and the Chinese Yuan in the background. Getty Images

Upward pressure:

Brent’s price gained some upward thrust as ceasefire talks between Israel and Hamas halted on Saturday, bringing supply concerns to the forefront of the oil market again.

Israel launched another attack on Saturday, targeting a prominent leader from the Iran-backed Hamas group, Reuters reported. The attack killed at least 90 people, according to the report.

In Canada, a ring of wildfires erupted last week around the oil sands of Fort McMurray, posing new risks to crude oil production.

“[The] risks to supply have not completely evaporated,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked.

Brent futures found further support after Iraq’s oil ministry said in a statement that the country would compensate for any overproduction since the beginning of this year, Reuters reported. The OPEC+ producer acknowledged that it produced 184,000 b/d of crude oil over its quota in June, according to the report.

Downward pressure:

Brent futures felt some downward pressure after China reported a slower-than-expected economic growth in the second quarter of this year.

The country’s gross domestic product (GDP) grew by 4.7% in the second quarter of this year, down from the 5.3% growth rate recorded in the previous quarter, according to data from the National Bureau of Statistics (NBS).

China’s crude oil imports were about 46.45 million mt in June, down about 10.8% from the same period last year.

These news reports have raised concerns about a slowdown in demand growth in China, according to market analysts.

“Given that China is expected to make up the majority of oil demand growth this year, it is not surprising [that] signs of weakness in Chinese demand are a concern,” two analysts from ING Bank noted.

The US dollar strengthened on Monday after a failed assassination attempt on former US President Donald Trump on Saturday during a rally in Butler, Pennsylvania. This news has increased bets on Trump's victory in the upcoming US elections. This has also exerted downward pressure on Brent’s price.  

“USD strength following the attempted assassination of former president Trump over the weekend is putting pressure on oil prices in early morning trading today,” ING Bank’s analysts said.

A stronger dollar increases the cost of dollar-denominated commodities like oil for holders of other currencies.

By Aparupa Mazumder

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