Brent inches lower following front-month change

The front-month ICE Brent contract has moved $2.17/bbl lower on the day from Friday, to trade at $109.61/bbl at 09.00 GMT.

IMAGE: Oil storage tanks. Getty Images

Upward pressure:

The Middle East conflict – now in its third month – has kept Brent’s price well above $100/bbl as the Strait of Hormuz closure remains the biggest concern for the oil market, according to analysts.

The US Central Command (CENTCOM) said it will start a new operation in the Strait of Hormuz to restore navigation through the highly crucial oil chokepoint.

The Strait of Hormuz handled about 20% of the world's global seaborne oil flows before the Middle East war broke out on 28 February.

“Crude oil prices rallied… as a US-Iran peace deal looked increasingly unlikely and raising the prospect of a sustained disruptions to oil supplies,” ANZ Bank’s senior commodity strategist Daniel Hynes said. “Peace talks have been stalled as both sides refuse to move on their respective red lines,” he added.

Downward pressure:

The front-month ICE Brent contract has changed from June to July, which goes a long way to explain the recent drop in price.

Brent's June contract was trading around $120/bbl on Thursday. However, the July contract opened near $111/bbl on Friday, accounting for much of the roughly $9/bbl decline. 

Last week was quite volatile for the oil market amid "the expiration of the ICE Brent Jun-26 contract on Thursday,” ING Bank’s analysts said.

Brent crude’s price gains were further capped by a rise in US crude oil rig activity.

The total number of rigs drilling for crude oil in the US rose by one to 408 units last week, according to Baker Hughes.

The US oil rig count is seen as an indicator of future oil production. It reflects how much oil drilling activity is happening or expected to happen in the shale sector.

By Aparupa Mazumder

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