Brent moves higher on strong demand growth signs from the US
The front-month ICE Brent contract gained $1.17/bbl on the day, to trade at $85.04/bbl at 09.00 GMT.
PHOTO: Oil barrels. Getty Images
Upward pressure:
Brent’s price gained further as economic indicators suggest growth in the US economy. A stronger economy may boost oil demand in the world's largest oil-consuming nation.
Industrial production in the US rose 0.9% month-on-month in May, the US Federal Reserve (Fed) reported on Tuesday. This manufacturing output reading came in stronger than the market’s expectation of a 0.3% rise.
“US industrial production increased in May… this led to further gains in equity markets, which helped boost sentiment across the commodities complex,” ANZ Bank’s senior commodity strategist Daniel Hynes said.
Strong macroeconomic data from the US has also “boosted bets” that the US Fed might cut interest rates sooner than expected, according to analysts. Lower interest rates are considered supportive of global demand, as it makes commodities like oil cheaper for non-dollar buyers.
The demand growth narrative got an additional boost as market participants continued to factor in robust travel during the summer season in the US and other countries.
“Oil continued its upward momentum from the previous day, as traders anticipate support for prices due to summer demand,” analysts from Saxo Bank said.
Downward pressure:
Brent’s price gain has been capped after the American Petroleum Institute (API) projected a surprise gain in US crude stocks.
Crude oil inventories in the US gained 2.26 million bbls in the week ended 14 June, according to API estimates. A surge in US crude stocks is a negative indicator of oil demand growth and can put downward pressure on oil prices.
Analysts polled by Reuters also predict a similar drop of 2.2 million bbls in the weekly crude stocks in the US.
“Numbers from the API overnight show that US crude oil inventories increased by 2.26m barrels [2.26 million bbls] over the last week, as opposed to expectations for stocks to fall by roughly 2.8m barrels [2.8 million bbls],” two analysts from ING Bank said.
Chinese refineries processed 60.52 million mt (14.25 million b/d) of crude in May, down 1.8% from the same period a year ago, data from China’s National Bureau of Statistics (NBS) showed. Reduced crude throughput has raised concerns about the country's demand outlook.
Market analysts argued that this news has exerted pressure on oil prices, with the global oil market becoming more cautious due to indications of weakening demand growth in China.
By Aparupa Mazumder
Please get in touch with comments or additional info to news@engine.online
