Brent nears $90/bbl on demand growth expectations and supply concerns
The front-month ICE Brent contract moved $1.74/bbl higher on the day, to trade at $88.62/bbl at 09.00 GMT.
PHOTO: Getty Images
Upward pressure:
Robust economic data from the world's biggest oil consumers, China and the US, have supported Brent gains.
China's manufacturing Purchasing Managers' Index (PMI) increased 1.7% month-on-month to 50.8 in March, according to data from China’s National Bureau of Statistics (NBS). In the US, the manufacturing PMI climbed to 50.3 in March, up from 47.8 in February, as reported by the US Institute for Supply Management (ISM).
Rising PMI signals increased manufacturing activity, which could lead to increased oil consumption.
“Optimism for economic growth was bolstered by manufacturing reports from the world's two largest economies at the start of April, providing further support for oil prices,” SPI Asset Management’s managing partner Stephen Innes said.
Yesterday, an alleged Israeli airstrike on Iran’s embassy in Damascus, Syria, resulted in the deaths of six people, including three senior Iranian military officials, as reported by state-owned news agency SANA. This recent development in the Middle East has again sparked concerns about oil supply disruptions in the region, analysts noted.
The oil market remains cautious about supply-side developments, particularly ahead of OPEC’s meeting tomorrow, where the coalition is expected to discuss production quotas for the rest of the year. “There are expectations the group will reaffirm its current supply policy,” ANZ Bank’s senior commodity strategist Daniel Hynes said.
Downward pressure:
In addition to the current challenges posed by a stronger US dollar, the recent increase in crude inventories in the US has also affected Brent’s recent gains, according to analysts.
A stronger US dollar typically makes dollar-denominated commodities like oil less attractive to investors. The dollar has risen to near four-month highs against other currencies after strong PMI figures.
The US Energy Information Administration (EIA) reported a 3.17 million bbls rise in commercial crude oil inventories in the US to 448 million bbls on 22 March. This has marginally dampened sentiment in the oil market and exerted downward pressure on Brent futures.
“While a build in crude and a drop in gasoline stocks are in line with seasonal behavior, the magnitude of the changes may still impact [oil] prices,” Saxo Bank’s head of commodity strategy Ole Hansen remarked.
By Tuhin Roy
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