Brent gains as supply concerns offset macroeconomic headwinds

The front-month ICE Brent contract has gained by $1.20/bbl on the day, to $75.35/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

“Crude oil gained as ongoing supply side issues helped spark a relief rally after heavy selling last week,” according to ANZ commodity strategist Daniel Hynes.

Threats of disruptions to Canadian oil supply due to ongoing wildfires and a Turkish refusal to restart Kurdish crude exports, from the Ceyhan port, have kept Brent in the green.

Meanwhile, the US Department of Energy (DoE) has announced it will buy up to 3 million bbls of sour crude in August to refill its strategic petroleum reserves. The sour variant, usually sourced from OPEC countries, typically sells at a discount to sweet crude because sour crude must be treated with hydrogen to lower the sulphur content. 

When the DoE buys up large quantities of oil, it increases the demand for the product, which in turn bolsters prices. But the DoE's purchases lowers stockpiles, thus driving the price up even further.

Downward pressure:

Concerns over macroeconomic uncertainty in the US and a muted economic recovery in China can dent Brent rates.

“Speculators reduced their net long positions in ICE Brent by 25,094 lots over the last reporting week to 112,742 lots as of last Tuesday - the smallest net long since December,” ING’s Warren Patterson said in a report published on Monday.

“The move was predominantly driven by fresh shorts with the gross short position now just over 100k lots, the highest level since July 2021. This relatively large short does leave some positioning risk for the market. Any convincing move higher in the market could lead to a short-covering rally,” Patterson explains.

By Konica Bhatt

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