Brent regains strength as investors await US Fed and OPEC+ JMMC outcomes

Front-month ICE Brent has gained by $1.96/bbl on the day, to $85.85/bbl at 09.00 GMT. The futures contract is trading almost flat with levels a month ago, only shedding 0.2%.

PHOTO: The headquarters of the Organisation of the Petroleum Exporting Countries (OPEC) in downtown Vienna, Austria. Getty Images

Upward pressure:

Brent has been supported by an expectation that slowing inflation may lead to a halt in central banks’ interest rate hikes earlier than anticipated. A pause in interest rate hikes could lead to increased economic activity, which will further increase oil demand.

Investors are also closely watching OPEC+'s Joint Ministerial Monitoring Committee (JMMC) meeting today. It is likely that the technical committee will recommend keeping the current OPEC+ output policy unchanged.

"Investors have become super-bullish about oil,” writes John Kemp, senior market analyst at Reuters. He has attributed the optimism to “China’s exit from a zero-COVID strategy, along with the hopes that global economy can avoid a recession and low oil inventories.” According to Kemp, "continued growth" is expected to tighten supplies and push up prices.

Russian President Vladimir Putin's decree takes effect today and will prohibit oil sales to countries getting behind the G7 coalition's price caps on Russian crude and oil products. Experts expect Russia to reduce its oil production by around 1 million b/d following the decree and a second round of EU sanctions on refined Russian petroleum products.

Downward pressure:

Going by an American Petroleum Institute (API) estimate, US crude inventories grew by 6.3 million bbls in the week ending 27 January. Official Energy Information Administration (EIA) figures are due to come out at 15.30 GMT today.

Chinese manufacturing activity has contracted for a sixth straight month in January, according to an official survey by Caixin Global, which commented that "surging Covid-19 infections disrupted supply, demand and employees’ ability to work.”

Global economic growth could be stifled by China's slow recovery, Russia's war in Ukraine and tighter global financing costs, warns the International Monetary Fund.

By Konica Bhatt

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