Brent declines sharply as crude inventories grow

The front-month ICE Brent contract plunged $3.0/bbl lower on the day, to trade at $86.68/bbl at 09.00 GMT.

PHOTO: Black drum barrel of oil. Getty Images

Upward pressure:

Brent futures continued to draw support from growing geopolitical tensions in the Middle East.

Oil market analysts are bidding on the chances of Israel's retaliation against the drone attack launched by Iran on 13 April. Any direct attack on Iranian oil facilities can put oil supplies under pressure and move Brent’s prices up again, analysts said.

“There's no denying that the Middle East remains a volatile region, akin to a powder keg resting atop smouldering embers,” said SPI Asset Management’s managing partner Stephen Innes.

Iran is OPEC’s third-largest crude oil producer with daily output slated above 3 million b/d, according to the group’s latest oil market report.

Downward pressure:

Brent futures plummeted after the US Energy Information Administration (EIA) reported a 2.74 million-bbl build in US commercial crude oil inventories to 459.99 million bbls on 12 April - the highest level since June last year.

“A bearish EIA inventory report appears to have been the perfect opportunity for investors to lock in profits after the recent gains,” said ANZ Bank’s senior commodity strategist Daniel Hynes.

The American Petroleum Institute’s (API) inventory report a day earlier was also bearish, suggesting a lacklustre growth in oil demand in the world’s largest oil consuming nation.

Israel's delay in retaliating against Iran's recent attack added additional downward pressure on Brent futures, according to analysts.

“The lack of an immediate response by Israel to Iran’s weekend attack has seen the market reduce its geopolitical risk premium,” Hynes added.

Brent futures have reverted to levels preceding the 1 April incident, when Israel struck Iran’s consulate in Syria, remarked Vandana Hari, founder and market analyst at Vanda Insights. This shift suggests that “the latest bout of risk premium from heightened Israel-Iran tensions has eroded,” she added.

By Aparupa Mazumder

Please get in touch with comments or additional info to news@engine.online