Brent loses momentum as demand concerns grow

The front-month ICE Brent contract lost $0.99/bbl on the day, to trade at $84.18/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Supply-related concerns have provided some support to Brent’s prices this week, with Ukraine ramping up drone attacks on Russian energy facilities.

On Wednesday, a Ukrainian drone struck the state-owned oil refiner Rosneft's refinery in Ryazan, western Russia, resulting in a fire, Bloomberg reported. The crude processing unit in Ryazan had only recently resumed operations following a prior strike.

The Ryazan refinery, with an annual oil processing capacity of 17.1 million mt, is one of the biggest refineries in Russia. The refinery has been regularly targeted by Ukrainian drones in recent months.

OPEC’s total oil production fell slightly by 100,000 b/d to 26.49 million b/d in April, according to a Reuters survey. This decline in production can be attributed to reduced exports from Iran, Iraq and Nigeria, as well as the ongoing voluntary production cuts by certain members within the broader OPEC+ alliance.

Downward pressure:

Brent futures extended recent losses amid signs of weaker demand after the US Federal Reserve maintained interest rates at 5.25-5.50% after its two-day policy meeting concluded yesterday. This decision marks the sixth consecutive meeting where the central bank has opted to keep interest rates unchanged.

Higher interest rates often dampen demand by increasing the cost of commodities like oil for non-dollar holders.

“Renewed jitters in the broader financial markets as US Federal Reserve chairman Jerome Powell confirmed expectations of higher-for-longer interest rates after the central bank’s two-day policy meeting on Wednesday also weighed on crude,” VANDA Insights' founder and analyst Vandana Hari said.

The US Energy Information Administration (EIA) reported a huge build in US crude stocks, supporting the “bearish” demand narrative. Commercial crude oil inventories in the US rose by 7.27 million bbls to 461 million bbls in the week ended 26 April – to its highest level since June 2023.

“Bearish inventory data from the Energy Information Administration (EIA) put further pressure on the [oil] market,” two analysts from ING Bank said.

By Aparupa Mazumder

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