Brent falls following ‘bearish’ IEA report
The front-month ICE Brent contract lost $0.56/bbl on the day, to trade at $81.36/bbl at 09.00 GMT.
PHOTO: Oil barrels. Getty Images
Upward pressure:
Oil prices found some support from a bullish US crude oil inventory report.
US crude oil stocks dropped by 5.2 million bbls in the week that ended 9 August, according to the American Petroleum Institute (API) estimates. The “larger-than-expected” drop in US crude stocks has put upward pressure on Brent’s price, two analysts from ING Bank said.
“If confirmed by the Energy Information Administration (EIA), this would be the seventh weekly decline in a row,” the analysts added.
Geopolitical risks in the Middle East are still high, prompting traders to factor in a higher risk premium on oil prices due to the uncertainty surrounding potential Iranian retaliation against Israel. “US officials believe an Iranian attack on Israel has grown more likely and may come as soon as this week,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked.
If a broader conflict erupts in the region, it will likely jeopardise the Iranian crude oil supply and threaten the safe passage of oil through key chokepoints in the Middle East.
“Oil prices are rising on geopolitical risk and falling inventories,” Price Futures Group’s senior market analyst Phil Flynn said.
Downward pressure:
Brent’s price came under pressure as market analysts focused on the International Energy Agency’s (IEA) latest oil demand growth forecast. The IEA sees oil demand growth to be less than 1 million b/d in both 2024 and 2025. The slow pace of demand growth can be largely attributed to “lacklustre macroeconomic drivers."
Demand growth is currently facing headwinds from reducing oil consumption in China, “driven by a slump in industrial inputs, including for the petrochemical sector," the IEA said. Chinese crude oil imports in July were the lowest “since the stringent lockdowns of September 2022,” the energy agency added.
“The IEA’s outlook on the market was relatively bearish,” ING Bank’s analysts said. The agency’s demand growth estimates were “largely due to the impact of weaker Chinese consumption,” they added.
On the supply side, the IEA expects global oil output to grow by 730,000 b/d this year, mainly driven by leading non-OPEC producers including the US, Brazil, Canada, and Guyana. Besides, OPEC+ plans to unwind supply cuts in October, which could give a further boost to the global oil supply, the IEA said
“The International Energy Agency (IEA) warned that should OPEC proceed with its plans to boost supplies in the fourth quarter, global oil inventories would start to rise,” Hynes added.
By Aparupa Mazumder
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