Brent gains as the market continues to focus on US economic growth

The front-month ICE Brent contract moved $0.17/bbl higher on the day, to trade at $85.21/bbl at 09.00 GMT.

PHOTO: Oil barrels on the US flag. Getty Images

Upward pressure:

Brent futures continued to move higher on the back of robust economic growth in the US. Industrial production in the country rose 0.9% month-on-month in May, while the Consumer Price Index (CPI) declined from 3.4% in April to 3.3% year-on-year in May.

Stronger-than-expected US manufacturing output in May and a consistent decline in the US CPI, a key inflation indicator, have bolstered the oil market's expectations of a September interest rate cut by the US Federal Reserve.

“[Brent] crude’s next moves will depend on whether the upbeat mood over a Goldilocks US economy and optimism over the Fed making its first cut of 25 basis points in September sustains,” VANDA Insights’ founder and analyst Vandana Hari noted.

The price of Brent crude is projected to hold steady over the coming weeks as the oil market tightens further in the third quarter of this year, following OPEC’s 2.2 million b/d output cut extension.

“Our balance shows the market tightening in the third quarter of this year after the rollover of OPEC+ cuts, so we should be seeing signs of a tightening in the physical market,” two analysts from ING Bank said.

Downward pressure:

Lackluster demand growth in China due to weaker refinery margins is still a major concern for the oil market, according to several analysts.

Chinese refiners processed 60.52 million mt (around 14.25 million b/d) of crude oil last month, a decline of about 1.8% year-on-year. “Demand in China also weighed on [oil market] sentiment,” ANZ Bank’s senior commodity strategist Daniel Hynes said.

Crude oil inventories in the US gained 2.26 million bbls in the week ended 14 June, according to API estimates. Analysts polled by Reuters also predict a similar drop of 2.2 million bbls in the weekly crude stocks in the US.

The official data from the US Energy Information Administration (EIA) is expected to be released later today. The Juneteenth holiday caused a one-day delay in its release. The oil market is eagerly awaiting the data to get a clearer picture of demand growth in the US.

By Aparupa Mazumder

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