Brent plunges as supply risk premium eases

The front-month ICE Brent contract has declined by $3.62/bbl on the day, to trade at $74.09/bbl at 09.00 GMT.

PHOTO: An oil pumpjack with downward arrows depicting Brent's price drop. Getty Images

Upward pressure:

Brent’s price found some support from the decline in OPEC+ oil output. The 12 core OPEC members produced an average of 26.04 million b/d of crude oil in September, about 604,000 b/d lower than their combined production in August.

Crude oil production in Libya, Iraq, Nigeria and Saudi Arabia decreased last month, the Vienna-headquartered group said.

Oil production in Iraq, the group’s second-largest producer, declined by 155,000 b/d to 4.11 million b/d in September, while output in Libya fell by 410,000 b/d last month to 540,000 b/d, OPEC said.

“The OPEC report also showed that Iraq belatedly made progress to implementing its share of output cuts due since the start of the year,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked.

Downward pressure:

Brent’s price plummeted following the latest comments from Israel that it may not target Iran’s oil infrastructure.

According to a Washington Post report, Israeli Prime Minister Benjamin Netanyahu has assured US President Joe Biden that the Israel Defense Forces (IDF) will target Tehran’s military infrastructure, rather than oil or nuclear facilities.

This news has suggested a more limited retaliation, rather than a full-scale war in the Middle East, and has eased some supply concerns, according to oil market analysts.

“Israel has assured the US that it will not strike crude oil or nuclear facilities in Iran,” two analysts from ING Bank said. “This has removed a big overhang for the oil market in the immediate term,” they added.

Lower crude oil imports from China, the world’s second-largest oil consumer, has also put downward pressure on Brent’s price. China imported 11.07 million b/d of crude oil in September, down from 11.56 million b/d imported in August.

“Chinese trade data yesterday has not helped [oil market’s] sentiment either,” ING Bank’s analysts said.

Meanwhile, Chinese economic stimulus announced over the weekend has not supported oil prices, analysts said. Chinese Finance Minister Lan Foan announced new measures, stating that Beijing would help local governments tackle debt and offer subsidies to people with low incomes, without mentioning the size of the fiscal stimulus.

“[Brent] crude oil prices sank as sentiment fell on the lack of new stimulus from China,” Hynes added.

By Aparupa Mazumder

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