Brent plunges as US data stokes demand fears in the market

The front-month ICE Brent contract moved $4.55/bbl lower on the day from Friday, to trade at $75.42/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Geopolitical risks in the Middle East have escalated over the weekend, providing some support to Brent futures. Oil investors have been in a wait-and-see mode since Friday to see how Iran would respond to the assassinations of Ismail Haniyeh and Fuad Shukr, two senior leaders from the Hamas and Hezbollah armed groups.

Iran has blamed Israel for these assassinations and has vowed to retaliate, according to several media reports. Meanwhile, the US and Israel are reportedly preparing for a major escalation of crisis in the oil-rich region, Reuters reports. US secretary of state Antony Blinken has warned that Iran and Hezbollah are poised to attack Israel within the next 24 to 48 hours.

“Together with rumblings between Israel and Hezbollah in Lebanon, the [oil] market is once again forced to focus on the unlikely risk of the month-long conflict spilling over to other parts of the Middle East, which ultimately could see the supply of energy being disrupted for a period of time,” Ole Hansen, head of commodity strategy at Saxo Bank said.

Political conflict over the rightful winner of the general election in Venezuela has also provided some support to Brent’s price. Oil supply will come under further pressure if the US extends the ban on Venezuelan oil, due to unfair electoral practices in the country headed by Nicolas Maduro.

Downward pressure:

Brent’s price moved lower after fears of a staggering recession in the US, the world’s largest oil consumer, rattled oil investors and market analysts.

The US unemployment rate rose to the highest level in nearly three years to 4.3% in July, due to an apparent slowdown in the country's job market, the US Bureau of Labour Statistics reported on Friday. In June, the increase in the unemployment rate was at 4.1%. 

This news has heightened the fears of a slowdown in the US economy. “The [US jobs] release suggests that the US economy is slowing more rapidly than expected, raising recession fears,” two analysts from ING Bank said. “This only adds to Chinese demand concerns that have been lingering in the oil market for some time,” they added.

Brent futures came under further downward pressure after the OPEC+ oil producers group decided to stick to its plan to gradually phase out the 2.2 million b/d output cut from the market, beginning this October.

This can bring back excess supplies to the market, analysts remarked. “The [oil] market will also keep a watchful eye on OPEC+ and whether they, as confirmed this week, will stick to an agreed plan to gradually increase production from October onwards,” Hansen said.

By Aparupa Mazumder

Please get in touch with comments or additional info to news@engine.online