Brent surpasses $75/bbl following new economic stimulus in China

The front-month ICE Brent contract has moved $1.01/bbl higher on the day, to trade at $75.42/bbl at 09.00 GMT.

PHOTO: An oil pump jack pictured at dusk. Getty Images

Upward pressure:

Brent’s price erased the previous day’s losses as tensions in the Middle East remained elevated and fresh economic stimulus from China supported demand growth expectations in the global oil market.

Oil traders and analysts are growing anxious about the escalating Israel-Hezbollah conflict, which has raised concerns over the potential disruption of oil supply in the oil-rich region. Israel launched a barrage of missiles into Beirut yesterday, specifically targeting the Iran-aligned Hezbollah armed group’s bases in the country, according to the Israel Defense Forces (IDF).

Brent’s price moved into positive territory, “following the latest air strikes by Israel on Hezbollah targets in Lebanon, worsening the Middle East tensions,” two analysts from ING Bank said.

Oil demand expectations got a boost after the People’s Bank of China (PBoC) said it will reduce its reserve requirement ratio (RRR) by 50 basis points and cut key interest rates to support the country’s economic growth, Reuters reported citing the central bank’s governor Pan Gongsheng.

“The latest supportive measures announced in Beijing have further buoyed sentiment in the commodity complex,” ING Bank’s analysts added.

Downward pressure:

Looming demand growth concerns from the world’s top oil consumers, China and the US, have capped some of Brent’s price gains today.

Despite the latest economic stimulus announced by China, oil market investors will continue to look for fresh demand growth cues, notably, the Chinese Manufacturing Purchasing Managers' Index (PMI) reading, which will be out later this month.

“Weak [Chinese] economic backdrop remains a concern,” for the global oil market, ANZ Bank’s senior commodity strategist Daniel Hynes remarked.

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.

Meanwhile, market analysts await weekly US crude oil stocks report from the American Petroleum Institute (API) and the US Energy Information Administration (EIA).

A surge in US crude stocks can dampen oil demand growth and put downward pressure on Brent’s price.

By Aparupa Mazumder

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