Brent sheds on bearish remarks from Fed officials

The front-month ICE Brent contract moved $0.95/bbl lower on the day, to trade at $83.06/bbl at 09.00 GMT.

PHOTO: Oil barrels. Getty Images

Upward pressure:

Brent futures found some support from the escalating political turmoil in the Middle East, while the recent drone attacks on Russian energy facilities have raised supply concerns in the global oil market.

“The Middle East political landscape was shaken by the death of Iran’s President. Separately, there are concerns over the health of Saudi Arabia’s King, Salman bin Abdulaziz,” ANZ Bank’s senior commodity strategist Daniel Hynes said.

A barrage of missiles caused a fire in Russian state-owned oil company Rosneft’s Tuapse refinery in Krasnodar region over the weekend, the country’s defense ministry said. The news supported Brent futures as the oil market “got a reminder that geopolitical risks have not evaporated,” Hynes said.

With supply concerns still looming, oil market watchers will now focus on the OPEC+ coalition, which is scheduled to convene in June to discuss output policies for the rest of the year. “There are growing expectations that it [OPEC+] will extend these [2.2 million b/d supply cuts] until the end of the year,” Hynes added.

Downward pressure:

Brent’s price lost upward momentum after officials from the US Federal Reserve (Fed) claimed that more signs of a slowdown in inflation were required before considering interest rate cuts this year.

"Inflation readings in the first quarter of this year were disappointing. These results did not provide me with the increased confidence that I was hoping to find to support easing monetary policy," Fed vice chair for supervision Michael Barr said at an Atlanta Federal Reserve conference on financial markets, according to Reuters.

The Atlanta Fed president Raphael Bostic said it will "take a while" for the US central bank to be assured that a slowdown in inflationary pressures was achieved, Reuters reported.

Brent’s price gains were capped after Fed’s senior official Michael Barr said the central bank “should maintain interest rates at current elevated levels for longer than previously expected due to stubbornly high inflation data,” VANDA Insights’ founder and analyst Vandana Hari remarked.

Higher interest rates can reduce oil demand by increasing the cost of commodities like oil for non-dollar holders.

By Aparupa Mazumder

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