Brent loses momentum as market focuses on demand concerns

The front-month ICE Brent contract lost $1.94/bbl on the day, to trade at $79.11/bbl at 09.00 GMT.

PHOTO: Silhouette of an oil pumping unit. Getty Images

Upward pressure:

OPEC member Libya is facing political turmoil due to the ongoing dispute over the control of its central bank. This news has supported Brent futures.

Crude oil production from the El Feel oilfield in southwestern Libya has been halted, according to Reuters. Production from other oilfields in the eastern and southeastern parts of the country has also stopped, with local operators planning a gradual shutdown of the country's total output, a report from Bloomberg suggests.

“The unrecognised Eastern Libyan government backs the current governor, and in what appears to be a negotiating tactic has threatened to stop oil production, which is largely based in the east,” two analysts from ING Bank said.

This news has increased supply concerns in the global oil market.

In eastern Europe, another drone attack from Ukraine sparked a fire at an oil depot in the Kamensky district of Russia's southern region of Rostov yesterday, Rostov's governor Vasily Golubev confirmed.

Meanwhile, oil demand growth in the US got a small cheer after the American Petroleum Institute (API) projected a 3.4 million-bbl draw in US crude stocks in the week that ended 23 August.

“Prices steadied after the API reported an across the board drop in US crude and fuel stockpiles,” analysts from Saxo Bank said.

Downward pressure:

Despite growing optimism about a cut in interest rate by the US Federal Reserve (Fed) in September to boost economic growth and consumer spending in the country, oil market analysts and traders remain cautious amid signs of sluggish demand growth from the world’s two largest oil consumers – the US and China.

Refinery activity in China declined in the past month, while the unemployment rate increased in July in the US. These developments have raised concerns about the economic health of both countries and capped oil price gains.

Brent’s price decline today was “driven by concerns over slower economic growth in the US and China potentially reducing energy demand after a recent price surge,” Saxo Bank’s analysts added.

Brent's price gained yesterday due to concerns over potential supply disruptions amid geopolitical tensions in the Middle East. However, traders and analysts believe that these factors are either temporary or insufficient to support oil prices in the long run.

“A three-day rally in crude oil prices driven by risks to supply came to a halt as the market viewed the move as overdone,” ANZ Bank’s senior commodity strategist Daniel Hynes said.

By Aparupa Mazumder

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