Brent set to end the week with a 4% drop

The front-month ICE Brent contract crept lower by $0.09/bbl on the day, to $77.90/bbl at 09.04 GMT.

PHOTO: Getty Images

Upward pressure:

Brent is being held back from declining further by a potential increase in Chinese oil consumption during the upcoming Golden Week holidays, when travel surges nationwide.

The Chinese Civil Aviation Administration has confirmed that the number of flights booked during the Golden Week has already exceeded six million, state-owned media agency Xinhua reports. That puts bookings at about the same level as those recorded in 2019, before the outbreak of COVID-19.

Chinese officials expect nine million air passenger trips during the holiday period in May, the report adds. Meanwhile, data from the tourism ministry shows that nearly 1.22 billion domestic tourist trips were made in the first quarter of 2023, a 46.5% increase on the year.

Brent is also drawing support from looming OPEC+ output cuts.

In the US, as of the third week of April, EIA data indicates the nation's Strategic Petroleum Reserve (SPR) stands at 366.9 million bbls, down from nearly 556 million bbls a year ago.

The near 200-million-bbl "gargantuan" difference from last year is bound to make the market uncomfortable, says Phil Flynn, senior account executive at The Price Futures Group.

“The reality is that [US SPR] supplies are extremely tight and the potential for a price spike is real, especially if we see major producers have a disruption in production.”

Downward pressure:

Fears of a recession, stemming from a slowing US economy, have suppressed Brent prices.

America's gross domestic product (GDP) growth rate dipped to 1.1% in the first quarter of 2023 compared with 2.6% in the fourth quarter of 2022, according to the Bureau of Economic Analysis’s (BEA) advanced estimates.

"Compared to the fourth quarter, the deceleration in [US] real GDP in the first quarter primarily reflected a downturn in private inventory investment and a slowdown in nonresidential fixed investment," the BEA noted.

Brent futures are under pressure also because “oil markets have been in surplus for three straight quarters”, thanks to robust Russian export volumes, according to Stephen Innes, managing partner of SPI Asset Management. This is despite the strong demand growth in Asia, and the US facing its summer driving season, he added.

By Konica Bhatt

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