Brent futures rangebound amid supply cuts and global economic concerns

The front-month ICE Brent contract has been broadly rangebound and gained $0.39/bbl on the day, to $75.76/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Brent futures got some upward momentum after Saudi Arabia announced an extension of its voluntary production cut of 1 million b/d by another month to include August. The step was "to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets,” state news agency SPA reported, citing an energy ministry source.

OPEC's allies Russia and Algeria also announced new voluntary output cuts for August. Both countries will now lower production and export levels in August by another 500,000 b/d and 20,000 b/d, respectively.

On the demand side, the oil market now awaits US crude inventories data from the American Petroleum Institute (API) later today and government data on Thursday. The releases of both datasets have been delayed this week due to a public holiday in the US on 4 July.

Downward pressure:

Lingering concerns about a global economic slowdown have averted a sharp rise in Brent futures.

After China lifted all of its Covid-related restrictions, its economic recovery has been significantly slower than expected, while Chinese oil demand has been strong, said Commerzbank analyst Carsten Fritsch. He said the recent spike in China’s oil demand was a “catch-up” effect after Covid-restrictions were eased.

Moreover, leading central banks around the world have hiked interest rates to tame inflation. The US Federal Reserve’s (Fed) chairman Jerome Powell warned about two more rate hikes by the end of 2023.

Higher interest rates often lead to less spending on commodities like oil, which in turn affects demand.

By Aparupa Mazumder 

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