Brent remains in limbo amid demand fears and supply concerns

The front-month ICE Brent contract has inched up $0.28/bbl on the day, to trade at $80.61/bbl at 09.00 GMT.

PHOTO: A pump jack on the US Dollar. Getty Images

Upward pressure:

Escalating fears of a much bigger supply deficit in the global oil market in the coming months have provided some upward thrust to Brent futures this week.

With more Arab countries joining the Israel-Hamas conflict to support Palestine, concerns over supply disruptions in key oil-producing regions are also growing, analysts said. Israel’s military confirmed on Thursday that a Syria-based organisation launched a drone attack on the southern Israeli city of Eilat, Reuters reported.

Earlier this week, Yemen-based Houthi militants also allegedly launched ballistic missiles at Israel that pose a direct threat to leading global oil producer Saudi Arabia. The shortest flight route for any drone or missile launched from Yemen to Israel crosses over the western part of Saudi Arabia which is closer to the Red Sea.

Downward pressure:

Brent futures felt some downward pressure after the US Federal Reserve’s (Fed) chairman Jerome Powell said that he is “not yet confident” with the central bank’s approach to tame inflation. Powell's comment hinted that the Fed could consider more interest rate hikes.

While speaking at an International Monetary Fund (IMF) research conference on Thursday, Powell clarified that tackling stubborn inflationary pressures remains the central bank’s focal point.

The Fed will continue to “address both the risk of being misled by a few good months of data and the risk of overtightening,” Powell said. The central bank kept its interest rates steady at 5.25%-5.5% at its latest Federal Open Market Committee (FOMC) meeting.

The Fed is “committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time,” Powell said. “We are not confident that we have achieved such a stance. If it becomes appropriate to tighten policy further, we will not hesitate to do so.”

“[Oil] Investors are facing steady declines after Jerome Powell's warning that interest rates might need to climb further,” said SPI Asset Management’s managing partner Stephen Innes.

Higher interest rates make the greenback stronger and cause a general lag in demand for dollar-denominated commodities like oil.

By Aparupa Mazumder

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