Brent shed previous gains due to weak demand projection

The front-month ICE Brent contract moved $1.46/bbl lower on the day, to trade at $77.07/bbl at 09.00 GMT.

PHOTO: Black barrels of oil. Getty Images

Upward pressure:

Brent futures have gained this week due to heightened geopolitical tensions in the Red Sea.

“Given the [Red Sea] uncertainty and the risk of a spillover, oil prices are likely to remain relatively well supported,” said two analysts from ING Bank.

British oil major Shell has suspended all oil shipments through the Bab al-Mandeb Strait and rerouted its tankers via the longer Cape of Good Hope route because of growing airstrikes by Iran-aligned Houthi militants, the Wall Street Journal (WSJ) reported.

This longer voyage time has increased 5-10% in overall cost of delivered goods, Shell’s chief executive officer Wael Sawan told WSJ. “We’ll have to see whether this becomes a longer-standing issue,” he added.

Downward pressure:

Brent futures pared the previous day’s gains due to weak demand projections from major global oil consumers, China and the US.  

China's gross domestic product (GDP) grew by 5.2% in the fourth quarter of 2023 compared to the same period a year ago, Reuters cited data from the National Bureau of Statistics (NBS). The GDP growth fell short of Reuters analyst poll estimate of 5.3%.

“The journey to this [China’s GDP] growth has been marked by challenges, including tepid domestic demand, producer prices in deflation, and three consecutive months of consumer price declines,” SPI Asset Management’s managing partner Stephen Innes said.

The US dollar remained close to a one-month high, as comments from US Federal Reserve officials dampened market expectations of interest rate cuts in March, Reuters reported.

The strengthening of the US dollar could make commodities such as oil costlier for non-dollar buyers.

“[Downward] pressure [on Brent futures] intensified due to a strengthening U.S. dollar as investors re-calibrated their expectations for near-term rate cuts from the Federal Reserve,” Innes added.

By Aparupa Mazumder

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