Global supply concerns move Brent higher

The front-month ICE Brent contract gained $0.91/bbl on the day, to trade at $76.33/bbl at 09.00 GMT.

PHOTO: Oil pump jacks are pictured at dusk. Getty Images

Upward pressure:

Supply disruption concerns have supported Brent’s price gains today. Production at Libya’s El Sharara oil field, the country’s biggest oil production zone, ceased completely on Monday due to unknown reasons, according to a Bloomberg report.

The El Sharara oil field has a crude production capacity of 300,000 b/d.

“The reasons for the shutdown were unclear, although Libya’s internationally recognised government alleged political blackmail,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked.

This news comes amid increasing geopolitical risks in the Middle East, which has already put upward pressure on Brent’s price. Besides, Israel is preparing for a possible attack from Iran and its proxies in the region, multiple media outlets have reported.

Oil market analysts and traders are waiting to see how Tehran will respond to the recent assassination of a senior Hamas leader on Iranian soil. "The possibility of war in the Middle East is getting real with Iran threatening to retaliate against Israel for taking out a Hamas leader,” Price Futures Group’s senior market analyst Phil Flynn said.

Brent's price gained further after the US services or non-manufacturing purchasing managers (PMI) index, another key inflation ticker for the US Federal Reserve (Fed), moved up from 48.8% in June to 51.4% in July, the Institute of Supply Management (ISM) reported.

A PMI reading above 50 indicates growth in economic health and an expansion in the services sector, which accounts for about two-thirds of the country’s economy. It can also support demand growth of commodities like oil.

Downward pressure:

Fears of a looming recession in the world’s biggest oil-consuming nation have raised concerns about the health of the US and global economy and continued to weigh on the Brent crude price, according to market analysts. 

“Crude oil prices tumbled... as investors rushed away from risky assets amid widespread volatility in global financial markets,” SPI Asset management’s managing partner Stephen Innes said.

The US unemployment rate rose from 4.1% in June to 4.3% in July—the highest in nearly three years, the US Bureau of Labour Statistics reported on Friday.

“Oil has been unable to escape the broader risk-off move seen across assets as concerns grow over the potential for a US recession following some weaker macro data in recent weeks,” two analysts from ING Bank noted.

By Aparupa Mazumder

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