Brent under pressure from heightened expectations of major Fed hike
Front-month ICE Brent has come down by $3.94/bbl on the day, to $82.61/bbl at 09.00 GMT.
PHOTO: Facade of the Federal Reserve Building in Washington DC. Getty Images
Upward pressure:
China's “management of the (Covid-19) disease may be downgraded as soon as January, to the less strict Category B from the current top-level Category A of infectious disease," Reuters reports, citing unnamed sources.
Major Chinese cities like Shanghai, Beijing and Shenzhen have already eased Covid-19 restrictions following a public backlash. A report from Reuters suggests China will announce 10 new measures to ease Covid-restrictions tomorrow, which may further boost sentiment.
“Signs that Russian oil supplies to Europe are stopping also supported prices,” says ANZ commodity strategist Daniel Hynes. “Despite the EU agreeing to a $60/bbl price cap, the market expects Russian oil to continue to flow.”
Citi's global head of commodities research, Edward Morse has told CNBC that price caps won't have any effect unless Moscow intervenes. He added that “the markets’ been moving because of optimism about China opening, and concerns about the US dollar because the Fed might be reducing the pace at which it’s raising rates.”
Downward pressure:
On the flip side, Daniel Hynes has said Brent values are under pressure after fresh data showed an unexpected rise in US services activity in November. This has “raised fears” that the Fed will continue to aggressively raise interest rates.
Saudi Arabia has lowered January’s official selling price (OSP) of Arab Light crude by $2.20/bbl for Asian buyers. According to Reuters, the OSP cut is due to "concerns over faltering demand and a potential increase in Russian competition."
The International Energy Agency (IEA) has highlighted the global energy crisis as a driving factor for the "unprecedented" shift to renewable energy. This comes a month after it cut its crude oil demand growth forecast for next year. A bleak demand outlook and the accelerated transition to renewables could push Brent downward.
“Global renewable power capacity is now expected to grow by 2,400 gigawatts (GW) over the 2022-2027 period, an amount equal to the entire power capacity of China today,” the IEA said in its annual renewables report.
By Konica Bhatt
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