Brent gains on US demand growth expectations
The front-month ICE Brent contract gained $1.49/bbl on the day, to trade at $85.24/bbl at 09.00 GMT.
PHOTO: Oil barrels. Getty Images
Upward pressure:
Brent moved higher as rising US crude stockpiles signalled demand growth in the world's biggest oil-consuming country.
Commercial crude oil inventories in the US dropped by 4.87 million bbls to 440 million bbls in the week ending 12 July - the lowest level since February, the US Energy Information Administration (EIA) reported yesterday.
The EIA reported an “unexpected plunge” in US crude stocks, VANDA Insights’ founder and analyst Vandana Hari remarked.
Top officials from the US Federal Reserve (Fed) said yesterday that the central bank is getting “closer” to cutting interest rates as inflationary pressures are cooling down, Reuters reported.
The Consumer Price Index (CPI) decreased from 3.3% in May to 3% in June, indicating a slowdown in the growth of US inflation. Comments from Fed officials have raised expectations for a rate cut in September.
Lower interest rates make dollar-denominated commodities like oil cheaper than other currencies, hence supporting demand growth.
Reports that Russia will further reduce its crude output to compensate for earlier overproduction this year have also supported oil prices today. The leading OPEC+ producer is expected to submit a compensation plan to the OPEC secretariat soon, according to ANZ Bank’s senior commodity strategist Daniel Hynes.
Downward pressure:
Declining economic activity in China has continued to cap some of Brent’s price gains. Gross domestic product (GDP) in the world’s second-largest oil consumer grew by 4.7% in the second quarter of this year, down from the 5.3% growth recorded in the previous quarter.
China’s ruling party commenced its “third plenum” on Monday, a significant closed-door meeting held once every five years to assess the country’s overall socio-economic health, according to reports.
Oil market analysts are awaiting the policy changes and key outcomes of the meeting presided over by Chinese President Xi Jinping, which concludes today.
“[Oil] investors…awaited updates from China’s Third Plenum,” analysts from Saxo Bank said.
By Aparupa Mazumder
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