Brent slumps as supply concerns ease

The front-month ICE Brent contract has moved $0.65/bbl lower on the day, to trade at $71.79/bbl at 09.00 GMT.

PHOTO: Oil barrels and graphs indicating prices. Getty Images

Upward pressure:

Oil market participants have been on the edge as tensions from the impending geopolitical risks remain high, according to analysts.

There is a “tentative floor under oil prices,” as traders keep an eye out for more Israeli airstrikes as the country continues its military operations in the regions controlled by Iran-aligned Hamas and Hezbollah armed groups, SPI Asset Management’s managing partner Stephen Innes remarked.  

“Some [oil] traders hedge against the possibility that Israel's initial strikes could signal the start of a broader campaign,” Innes said. “Particularly if Israel redirects its focus [towards attacking energy facilities] after addressing the immediate threats posed by Hamas and Hezbollah,” he added.

The US Department of Energy’s (DOE) Office of Petroleum Reserves announced a new solicitation to buy up to 3 million bbls of crude oil to replenish its Strategic Petroleum Reserves (SPRs).

The SPR is one of the world’s largest emergency crude oil reserves. When the US purchases crude oil to fill its SPR, significant volumes of oil are removed from the market, which could potentially tighten supply and support oil prices.

Downward pressure:

Brent’s price declined as Israel’s retaliatory strikes against Iran were not directed toward oil facilities. The geopolitical risk premium priced in by the market has slumped as the Israel Defense Forces (IDF) primarily focused on targeting Iran’s military facilities.

“Iran didn’t immediately vow to respond,” ANZ Bank’s senior commodity strategist Daniel Hynes said. “Instead, it downplayed the scale and effectiveness of the attack and suggested that its warnings, in recent weeks, against an aggressive strike had deterred Israel,” he added.

This news comes at a time when the oil market is already bracing for excess supply as OPEC+ plans to gradually unwind its production cuts, analysts said.

“[Oil] traders instead turned their attention to OPEC’s planned December increase of currently unwanted barrels,” analysts from Saxo Bank noted.

By Aparupa Mazumder

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