Brent rises but macroeconomic headwinds limit the upside
Front-month ICE Brent has inched upwards by $0.51/bbl on the day from Friday, to $75.29/bbl at 09.00 GMT.
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Upward pressure:
Russian President Vladimir Putin's comments about stationing nuclear weapons in Belarus have triggered a strong backlash from the West, and added some upward pressure on Brent. Europe has threatened further sanctions if Russia deploys nuclear weapons in Belarus.
Energy intelligence agency Wood Mackenzie has forecast Brent to average $89/bbl this year, driven by strong Chinese oil demand. “China being on the move again after the Zero Covid policy of 2022 will account for 1 million barrels a day (b/d) of the 2.6 million b/d gain we expect in oil demand this year,” it has said in a note.
“As markets stand right now, assuming US bank risk fades and broader volatility drops, our bullish play is for OPEC to stay the course and with the weaker dollar allowing better China fundamentals to shine through,” SPI Asset Management’s managing partner Stephen Innes says, adding “And bullishly, we think oil markets could enter a small global deficit as soon as June due to OECD skirting a 2023 bank-driven crisis recession, thirsty Asia buyers and a fall in Russian production.”
Downward pressure:
Brent gains have been capped as the recent banking turmoil has kept traders on edge. The collapses of Credit Suisse and Silicon Valley Bank have prompted fears that other major banks might fail, which could snowball into a full-scale financial crisis. This may also cause recessions in the US and Europe.
The International Monetary Fund (IMF) has warned of imminent risks to global financial stability amid "exceptionally high" macro-economic uncertainty. According to IMF's managing director Kristalina Georgieva, 2023 will be a "challenging year" with “global growth slowing to below 3 percent as scarring from the pandemic, the war in Ukraine, and monetary tightening weigh on economic activity.”
Around half of Nigeria's crude oil supplies for April remain unsold. The OPEC oil producer struggles to sell its crude to French refineries that have been crippled by strikes, and as several refineries across Europe are either down for maintenance or running at reduced rates, Bloomberg reports, citing oil trader sources. ING has pointed out that France is one of the largest buyers of crude oil from Nigeria and its reduced refining capacity is "obviously" affecting Nigerian crude oil demand.
The number of rigs extracting crude oil in the US rose by four units to 593 last week, Baker Hughes reported. This is the second straight week of a rise in the US oil rig count.
By Konica Bhatt
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