Brent gains as Middle Eastern conflict takes a fresh turn

The front-month ICE Brent contract moved $0.73/bbl higher on the day, to trade at $88.14/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Brent futures extended gains amid growing concerns about escalation of geopolitical tensions in the Middle East.

“The possibility of further escalation [of tensions] in Eastern Europe and the Middle East remains a key factor driving upside risks in the oil market,” SPI Asset Management’s managing partner Stephen Innes said.

The US House of Representatives voted in favour of a foreign aid bill for Ukraine and Israel. The bill also includes a provision to broaden the current sanctions against Iranian oil.

This bill, which will be passed onto the US Senate and presented to President Joe Biden, “provides for US sanctions on foreign ports, vessel owners and operators, and entities that “knowingly” engage in the transportation, trade or refining of Iranian oil,” Vandana Hari, founder and market analyst at VANDA Insights said.

Brent futures also gained after the American Petroleum Institute (API) reported a decline in US crude stocks. Commercial crude inventories in the US declined by 3.23 million bbls in the week ended 19 April, according to the API.

A decline in US crude stocks indicates that oil demand is improving in the world’s top oil-consuming nation.

Downward pressure:

Downside risk factors acting on oil prices include the possibility of an increase in supply in the global oil market led by non-OPEC producers like the US, with its shale producers continuously ramping up drilling efficiency, analysts said.  

Internal conflicts between the OPEC+ coalition could also prompt certain members to release its spare capacity, they added.

“Tensions within the [OPEC+] cartel persist, leading to voluntary cuts by certain members,” Innes said. “The UAE has expressed eagerness to ramp up production. The unity of the cartel largely depends on Saudi Arabia's willingness to continue shouldering a significant portion of the cuts,” he added.

By Aparupa Mazumder

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