Brent edges higher amid growing geopolitical tensions

The front-month ICE Brent contract moved $0.31/bbl higher on the day, to trade at $85.75/bbl at 09.00 GMT.

PHOTO: Oil pump jacks photographed at dusk. Getty Images

Upward pressure:

Rising geopolitical conflicts around the world have supported Brent futures. Recent drone attacks on Russian oil infrastructure have fueled supply crunch fears in the global oil market.

“Russia blamed the US for a Ukrainian missile strike on occupied Crimea and warned of unspecified consequences for the attack,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked.

The European Union (EU) has placed sanctions on 27 Russian tankers for circumventing the Price Cap Coalition’s oil price cap. These vessels include ships run by Russia’s state-owned shipping company Sovcomflot.

The oil market also “remains on edge” ahead of presidential elections in Iran later this week, according to analysts. “A more hard-line president could result in more direct confrontations with the US, Israel and Saudi Arabia,” Hynes added.

Tensions between the Middle East and the West have surged in recent weeks with Yemen’s Houthi forces ramping up attacks on commercial ships in the Red Sea. The latest attack on a Greek-owned bulk carrier, M/V Tutor, caused the vessel to sink, Reuters reported.

This news “marked what appears to be a new escalation by the Iranian-backed Houthis in their campaign of strikes on ships in the vital maritime corridor,” Price Futures Group’s senior market analyst Phil Flynn said.

Oil prices gained further support amid forecasts of increase in oil demand growth, with the US, one of the world’s largest oil-consumer, entering peak summer travel season.

Brent crude “received additional support from peak summer demand,” analysts from Saxo Bank wrote in a note.

Downward pressure:

Oil market analysts remain focused ahead of US Consumer Price Index (CPI) data for June, as it is a key indicator of inflation growth in the US.

The US CPI data release is expected to shed more light on the US Federal Reserve’s (Fed) preferred path on interest rate cuts this year. The Fed is expected to cut interest rates at least once before the year-end, if it sees inflation in the country cooling at a better-than-expected rate, according to analysts.

Higher interest rates can dampen oil demand growth, as it tends to make the greenback stronger against other currencies. This makes it expensive to buy dollar-denominated commodities like oil.

The US CPI data is scheduled to be released on Friday.

By Aparupa Mazumder

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