Brent sheds on weak economic data from leading oil consumers

The front-month ICE Brent contract moved $1.43/bbl lower on the day, to trade at $79.97/bbl at 09.00 GMT.PHOTO: Oil barrels. Getty Images

Upward pressure:

Geopolitical tension in the Middle East remained the biggest upside factor for Brent futures this week, following the assassination of a prominent leader from the Iran-aligned Hamas militant group in Tehran.

“The more Iran gets directly involved, the more risks of oil supply disruption grow,” two analysts from ING Bank remarked.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) left its crude oil output policy unchanged at the latest Joint Ministerial Monitoring Committee (JMMC) meeting, which concluded yesterday. The member countries reiterated that the gradual phase-out of the ongoing 2.2 million b/d production cut could be paused or reversed, depending on market conditions.

Oil market analysts expect the Vienna-headquartered group to observe summer demand growth, before unwinding production cuts.

“Investors are weighing OPEC+'s decision to maintain its current output policy against concerns of potential escalation [of tensions] in the Middle East following the killing of a Hamas leader in Iran,” analysts from Saxo Bank noted.

Downward pressure:

Brent futures felt some downward pressure as manufacturing activity in the world's top oil consumers, China and the US, slowed for the third consecutive month in July.

The Manufacturing Purchasing Managers' Index (PMI) reading in the US dipped from 48.5 in June to 46.8 in July, indicating a decline in the country’s manufacturing sector. In China, manufacturing PMI fell slightly from 49.5 in June to 49.4 in July.

A PMI reading below 50 typically indicates weak economic health and a contraction in the manufacturing sector, which includes production, inventory levels, new orders, etc.

“The commodities complex came under pressure yesterday with a weaker-than-expected US ISM manufacturing index reading. This will only add to demand worries,” ING Bank’s analysts said.

By Aparupa Mazumder

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