Brent poised to close the week on a high note

The front-month ICE Brent contract has moved $0.25/bbl higher on the day, to trade at $74.70/bbl at 09.00 GMT.

PHOTO: An oil pumpjack. Getty Images

Upward pressure:

Brent’s price moved higher for the second consecutive day following a jumbo US interest rate cut, supporting demand growth optimism in the world’s largest oil consuming nation.

The US Federal Reserve (Fed) cut its key interest rates by 50 basis point for the first time in almost four years, bringing the central bank’s benchmark rate to a range between 4.75% and 5.00%.

Lower interest rates in the US can boost demand growth for dollar-denominated commodities like oil as it makes it more affordable for holders of other currencies.

“[Brent] crude oil surged higher as the Fed’s aggressive rate cut eased concerns about a hard economic landing,” ANZ Bank’s senior commodity strategist Daniel Hynes said.

Oil market investors are also closely watching geopolitical developments in the Middle East. The news of pager devices, used by Iran-aligned Hezbollah armed group, exploding across the southern part of Lebanon on Wednesday has raised concerns of a wider Israel-Lebanon conflict. Moreover, Israel’s Defence Minister Yoav Gallant declared the beginning of a “new phase” or war with the Hezbollah armed group.

“Higher risk premiums due to rising tensions in the Middle East,” have supported Brent’s price gains today, analysts from Saxo Bank remarked.

Downward pressure:

Brent’s price continues to feel modest downward pressure due to concerns about demand growth in China, the world’s second-largest oil consumer.

China’s refinery activity, a key indicator of demand growth, continued to decline last month due to poor margins. Chinese refiners processed about 59.07 million mt (13.91 million b/d) of crude oil in August, down 6.2% from the same period a year ago, market intelligence provider JLC reported, citing data from China’s National Bureau of Statistics (NBS).

“The market remains concerned about weak demand in China,” Hynes said.

Moreover, the country’s crude oil imports also slumped last month. China imported 11.56 million b/d of crude oil last month, down from 12.43 million b/d imported in August 2023.

“[Oil market’s] attention will likely turn back to [Chinese] demand worries,” as the country has remained a “key concern” in the global oil market, two analysts from ING Bank said.

By Aparupa Mazumder

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