Brent rises amid concerns over tight supply

The front-month ICE Brent contract has moved up by $1.20/bbl on the day, to $76.96/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Brent futures extended gains amid concerns about tight crude oil supply. OPEC's allies Russia and Algeria announced a fresh round of supply reduction for August. Both countries will now lower output and export levels in August by another 500,000 b/d and 20,000 b/d, respectively.

Additionally, OPEC’s de facto leader Saudi Arabia also extended its existing 1 million b/d output cut by another month to include August.

“Oil is predictably finding price support due to voluntary supply cuts from Saudi Arabia and Russia,” said SPI Asset Management’s managing partner Stephen Innes.

Downward pressure:

The oil market has been speculating further interest rate hikes by central banks, to limit inflation levels. As a result, Brent has felt some downward pressure in recent days.

Minutes from the US Federal Reserve (Fed) June 13-14 meeting indicated that a further hike in interest rate is possible. However, it is likely to happen by the end of this year.

Higher interest rates could slow down demand growth, especially for commodities.

“The oil balance will likely tighten and so will financial conditions, judging by the Fed minutes released last night," said PVM’s analyst Tamas Varga. “Persistent recession worries will probably encumber, but not prevent, oil from marching higher,” he further added.

By Aparupa Mazumder 

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