Brent sheds on bearish US inventory report

The front-month ICE Brent contract lost $0.39/bbl on the day, to trade at $89.68/bbl at 09.00 GMT.

PHOTO: Crude oil pump jacks. Getty Images

Upward pressure:

Rising tensions between Israel and Iran are driving up Brent futures this week. Several financial institutes and analysts have adjusted their Brent crude price forecasts for the year following Iran's recent attack.

Oil traders are speculating on how Israel would respond to Iran's weekend attack, commented ANZ Bank’s senior commodity strategist Daniel Hynes. The Israeli army chief has indicated that Iran will bear the consequences for the attack. Any escalation from this point onward could disrupt crude movements in the region, causing more volatility in the oil market.

“Tightening fundamentals” from the ongoing OPEC+ production cuts and geopolitical risk premiums will push Brent’s prices during the summer season (April – September), Morgan Stanley’s head of European oil and gas research Martijn Rats said.

The bank raised its price forecast by $5/bbl to $95/bbl for the same period.

Downward pressure:

A stronger-than-expected build in US crude inventories has dragged Brent’s prices lower this morning. US commercial crude inventories gained 4.1 million bbls in the week ended 12 April, according to the American Petroleum Institute (API).

Oil market analysts project a weekly stock build of around 1.65 million bbls. The widely followed US government data on crude oil stockpiles from the EIA is due later today.

API’s data was “somewhat bearish, with a larger-than-expected crude build overshadowing a drawdown in gasoline inventories,” said VANDA Insight’s founder and analyst Vandana Hari.

Brent futures shed further after the US Federal Reserve’s (Fed) chairman Jerome Powell reiterated in his speech that the central bank was still hesitant to cut interest rates anytime soon.

The oil market lost some gains after Powell’s remarks indicated that “interest rates may need to remain elevated for some time,” said SPI Asset Management’s managing partner Stephen Innes. “The hawkish tone from Powell didn't come as much of a surprise, considering the persistent inflationary challenges,” he added.

Higher interest rates can dampen global demand by increasing the cost of commodities like oil for non-dollar holders.

By Aparupa Mazumder

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