Brent price rangebound amid conflicting demand signals

The front-month ICE Brent contract inched $0.06/bbl higher on the day, to trade at $85.30/bbl at 09.00 GMT.

PHOTO: An oil pumpjack. Getty Images

Upward pressure:

Supply tightness through the third quarter of this year has continued to provide a floor to Brent's price this week.

Wildfires across Alberta, Canada are escalating threats to production in the oil sands-rich area. More than 130 wildfires are currently burning in the region, according to media reports. Oil producers, including MEG Energy have evacuated workers from its Christina Lake oil-sands site, Bloomberg reports.

This has put about 400,000 b/d of oil production under direct threat, according to ANZ Bank’s senior commodity strategist Daniel Hynes.

“In the short term, supply concerns from Canada provide a more solid floor [to oil prices],” two analysts from ING Bank said.

In the US, declining crude oil inventories continue to support robust demand growth expectations in the market. Commercial crude oil inventories in the US dropped by 4.87 million bbls to 440 million bbls in the week ending 12 July.

“The recent US data bolstered the argument for the Fed to accelerate its rate-cutting plans, which could potentially encourage increased spending on oil,” analysts from Saxo Bank said.

Downward pressure:

Brent futures moved in a narrow range today amid demand growth concerns from China.

Economic activity in the world’s second-largest oil consumer declined in the second quarter of this year. The country's gross domestic product (GDP) grew 4.7% in the second quarter, down from the 5.3% growth rate recorded in the previous quarter.

Additionally, the country’s June crude throughput touched this year’s lowest level. Chinese refineries processed about 58.32 million mt (14.19 million b/d) of crude in June, down 3.7% from the same period a year ago.

“Growing Chinese demand concerns are capping the market, following a raft of data earlier this week suggesting a softer demand picture,” ING Bank’s analysts said.

By Aparupa Mazumder

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