Brent declines on US inventory build

The front-month ICE Brent contract has moved $1.22/bbl lower on the day, to trade at $80.14/bbl at 09.00 GMT.

IMAGE: Oil barrels. Getty Images

Upward pressure:

Hopes of a September interest rate cut got a further boost yesterday after US inflation data came in and was “in line” with the oil market’s expectations, analysts said. This has put some upward pressure on Brent’s price today.

Inflation in the US, measured by the change in the Consumer Price Index (CPI), declined from 3% in the year to June, to 2.9% in the year to July.

The inflation reading is gradually approaching the US Federal Reserve's 2% target, which raises expectations of an interest rate cut in September.

“The latest CPI readout delivered a measured sigh of relief on the disinflation front, aligning neatly with market forecasts and further greasing the wheels for a potential rate cut come September,” SPI Asset Management’s Stephen Innes said.

Lower interest rates in the US can boost oil demand, making dollar-denominated commodities like Brent crude cheaper for holders of other currencies.

Sentiment in the global oil market “was in a holding pattern after the US July inflation reading on Wednesday came within expectations,” VANDA Insights’ Vandana Hari remarked.

Downward pressure:

Brent’s price moved lower as the oil market was surprised by a rise in US crude stocks. Commercial US crude oil inventories rose by 1.36 million bbls to 431 million bbls in the week ending 9 August, after dropping for six straight weeks.

Some oil market analysts say the surge in US crude stocks suggests that US oil demand growth may not be as robust as the market had initially thought.

“Oil prices came under renewed pressure following a surprise build in US crude oil inventories,” two analysts from ING Bank wrote in a client note.

In China, factory output came down in July, while refinery throughput slipped for a fourth consecutive month, Reuters reported. This highlights a lacklustre economic recovery for the world’s second-largest oil consumer.

“A clutch of Chinese economic data for July released Thursday morning confirmed the trend of an uneven recovery - growing industrial output but slowing consumption,” Vandana Hari added.

By Aparupa Mazumder

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