Brent moves lower following dovish remarks by Fed chief

The front-month ICE Brent contract moved $0.69/bbl lower on the day, to trade at $86.47/bbl at 09.00 GMT.

PHOTO: An oil pumpjack and a barrel on US Dollar bills. Getty Images

Upward pressure:

Brent futures found support from a bullish US crude inventory report by the American Petroleum Institute (API).

Crude oil inventories in the US declined sharply by 9.16 million bbls in the week that ended 28 June, the API projected. This news has supported the oil market’s expectation of a steady demand growth in the US during the summer travel season.

Oil market analysts expected a much smaller draw of 150,000 bbls in the week. “Those API numbers show that US crude oil inventories decreased by 9.2m barrels [9.16 million bbls] over the last week, higher than the average market expectations,” two analysts from ING Bank said.

Geopolitical risk factors in the Middle East also supported oil prices. The Israel Defense Forces (IDF) struck several residential areas in southern Gaza yesterday, Reuters reported. Additionally, Israeli forces and Lebanon-based militant group Hezbollah continued to engage in cross-border hostilities along Lebanon’s southern border.

“Escalating Middle East tensions raised concerns of a broader conflict,” analysts from Saxo Bank said.

Downward pressure:

The US Federal Reserve’s (Fed) chairman Jerome Powell reiterated on Tuesday that the central bank needs more time to be confident before cutting interest rates this year, according to a CNBC telecast.

Powell’s comments were “slightly more dovish” than before, oil market analysts remarked. “[Oil] investors took on board remarks by Federal Reserve Chairman Jerome Powell and the US employment data on Tuesday, neither of which prompted much recalibration of rate cut expectations,” Vanda Insights’ founder and analyst Vandana Hari said.

Higher interest rates can dampen oil demand growth as it typically makes the greenback stronger for dollar-denominated commodities like oil, against other currencies.

Brent lost ground as concerns about production disruptions due to Hurricane Beryl faded. The hurricane is expected to subside into a tropical storm when it enters the Gulf of Mexico, Reuters reported citing the US National Hurricane Center.

“The decline [in oil prices] was attributed to diminishing fears of supply disruptions from Hurricane Beryl, which is now expected to have minimal impact on offshore oil production,” analysts from Saxo Bank said.

By Aparupa Mazumder

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