Brent gains on extended supply cuts

The front-month ICE Brent contract has gained $0.18/bbl on the day from Friday, to $85.62/bbl at 09.00 GMT.

PHOTO: Oil pipeline valve in front of the Saudi Arabia flag on the oil barrels. Getty Images

Upward pressure:

Brent gained upward momentum as extended crude oil production cuts announced by Saudi Arabia and Russia last week raised concerns about tight supply in oil markets.

Russia’s crude seaborne exports in July saw a “significant drop”, commented SPI Asset Management’s analyst Stephen Innes. “A particularly sizable slide in Russian exports to India [in July], hint's that OPEC+ coordination likely drives much of Russia's increased compliance, in tandem with the extra 1 million b/d Saudi cut in July,” he added in a note.

Brent also drew support from the US Federal Reserve chairman Jerome Powell's recent comments. Powell said that a probable “soft landing” in the US economy could be achieved soon, hinting at a pause in interest rate hikes and easing worries about a sluggish oil demand growth in the world’s largest crude importer.

Downward pressure:

Concerns about a slow pace of economic growth in China amid recurring COVID-19 outbreaks has been weighing down on Brent futures. Oil investors are waiting for some concrete steps to boost demand growth in China after the Communist Party Politburo pledged to accelerate growth in the country's 10 economic sectors that are currently struggling with COVID-19 outbreaks.

“Indeed, this [China's steps to boost growth] is crucial for the outlook, as China is the main engine of oil demand growth, making up 60% of this year's expected global increment,” Innes said.

By Aparupa Mazumder

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