Brent moves higher on the back of demand growth expectations

The front-month ICE Brent contract gained $0.35/bbl on the day, to trade at $85.26/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Brent crude price has rebounded as the global oil market focused on oil demand growth factors, following a decline in US crude stocks. Commercial crude oil inventories in the US dropped by 3.44 million bbls to 445 million bbls in the week ending 5 July, the US Energy Information Administration (EIA) reported.

The EIA reported a drop in crude stockpiles, “more than the API report suggested,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked. The robust travel around the US Independence Day holiday was the driving force behind the strong demand, he added.

Market reports released yesterday have added to the market's expectations of increased oil demand this year. In its July oil market report, the EIA stated that it anticipates a 1.1 million b/d increase in global oil demand to reach 102.9 million b/d in 2024 and an increase of 1.8 million b/d to 104.7 million b/d in 2025.

OPEC, on the other hand, has maintained its demand growth forecast at 2.25 million b/d in 2024 and 1.85 million b/d next year. The oil-producers group continues to bank on its “aggressive” demand growth forecast, two analysts from ING Bank said.

Oil prices also gained after the US Federal Reserve’s chairman Jerome Powell, delivered a second testimony at the US Senate Banking Committee, prompting market participants to expect an interest rate cut in September. Lower interest rates help to support demand growth by making dollar-denominated commodities, such as oil, more affordable for non-dollar holders.

“Federal Reserve Chair Jerome Powell's second day of testimony on Capitol Hill keeps the hopes of a September rate cut alive and kicking,” SPI Asset Management’s managing partner Stephen Innes said.

Downward pressure:

Following Hurricane Beryl's minimal disruption to the Gulf Coast energy infrastructure, supply concerns from the US have subsided, which has resulted in some downward pressure on Brent.

The OPEC+ oil market report for the current month mentioned that key producers from the coalition continued to pump above their designated production quotas in June.

“Data published by the OPEC secretariat showed some members, including Iraq, Kazakhstan and Russia, are collectively producing several hundred thousand barrels a day above quota,” Hynes noted.

These producers are expected to reduce oil output to make up for the overproduction in the first six months of this year.

The US Consumer Price Index (CPI) data is due later today. The data is expected to shed light on US inflation growth last month, which will be a key indicator for the Fed to decide the roadmap for interest rate cuts in 2024.

By Aparupa Mazumder

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