Brent steady as demand growth factors stay in focus

The front-month ICE Brent contract remains unchanged on the day from Friday, to trade at $85.44/bbl at 09.00 GMT.

PHOTO: Oil barrels. Getty Images

Upward pressure:

Signs of strong demand growth in the US with the onset of the summer travel season, along with a decrease in crude oil inventories, have been consistently driving up Brent's price.

The US Energy Information Administration (EIA) reported a notable decline in US crude stocks that supported the market’s demand growth narrative. Commercial crude oil inventories in the US fell by 2.552 million bbls to 457 million bbls in the week ending 14 June.

Oil prices found support from the “balance between improving U.S. demand and falling oil and fuel inventories,” analysts from Saxo Bank remarked.

Supply concerns due to rising geopolitical risks in Eastern Europe also remained in focus after oil infrastructures in Russia came under Ukrainian drone attacks last week, according to analysts.

“Four refineries in Russia were targeted by a drone attack on Friday,” ANZ Bank’s senior commodity strategist Daniel Hynes said. “In the past several weeks Ukrainian drone attacks have damaged at least two other refineries,” he added.

Downward pressure:

Some of Brent’s price gain has been capped as the US dollar continued to strengthen against six major foreign currencies, following growth reported in US Purchasing Managers Index (PMI) data on Friday.

The US PMI, a key indicator of growth in the manufacturing and services sectors, surged to a 26-month high in June, Reuters reported.

“A stronger dollar following better than expected US manufacturing and services data saw the commodities sector end the week on a sour note,” analysts from Saxo Bank said.

A rising greenback can make dollar-denominated commodities costlier for non-dollar holders and weigh on oil demand growth. The uptick in PMI also signifies a robust expansion in economic activities across various industries, which indicates higher oil demand.

In the Middle East, Israel’s Prime Minister Benjamin Netanyahu stated on Sunday that the “intense phase” of conflict in the Gaza Strip was coming to an end. This news has alleviated some supply concerns arising from the oil-rich Middle Eastern regions.

“After the intense phase is finished, we will have the possibility to move part of the forces north,” Netanyahu said in an interview with Israeli broadcaster Channel 14, as quoted by Reuters.

By Aparupa Mazumder

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