Brent falls after API reports a surprise build in US crude stocks

The front-month ICE Brent contract moved $0.50/bbl lower on the day, to trade at $85.25/bbl at 09.00 GMT.

PHOTO: Oil barrels. Getty Images

Upward pressure:

Rising geopolitical risks have continued to lend support to Brent futures this week.

Iran-aligned Houthi militants, who have been targeting commercial vessels since November last year, have so far drowned two vessels and seized one with incessant drone attacks and airstrikes.

These attacks, coupled with growing tensions between Israel and Lebanon-based Hezbollah militia, have severely hindered movement of ships in the Red Sea and triggered supply concerns in the global oil market, according to analysts.

Tensions between Russia and Washington have also heightened this week, with the US allies ramping up sanctions on vessels that Moscow uses to transport its oil, according to analysts. “The European Union slapped sanctions on specific ships, including 17 crude oil and refined product carriers in its latest round of sanctions,” ANZ Bank’s senior commodity strategist Daniel Hynes said.

Oil market watchers are also concerned about the outcome of the presidential election in Iran that will take place on Friday. A more “hard-line” president could provoke tensions between Iran and the US and result in additional sanctions on Iranian commodities, according to analysts.

“The [oil] market is also mindful of changes to Iran’s international relationships after elections this Friday,” Hynes added.

Downward pressure:

Brent’s price felt some downward pressure after the American Petroleum Institute (API) projected a surprise build in US crude stocks. Crude oil inventories in the US gained 914,000 bbls in the week that ended 21 June, according to the API estimates.

Oil market analysts expected a draw of 3 million bbls in the week.

“We could see further [downward] pressure in the immediate term after API numbers overnight came in more bearish than expected,” two analysts from ING Bank noted.

Oil market investors await US Consumer Price Index (CPI) data for the current month, scheduled for release on Friday, to get a clearer picture of inflation growth in the world’s largest crude oil consuming nation. This news will be crucial for the market as it is expected to indicate how the US Federal Reserve (Fed) will proceed with interest rate cuts this year.

Higher interest rates make the greenback stronger against other currencies, which in turn could reduce demand for dollar-denominated commodities such as oil.

By Aparupa Mazumder

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