Fears of tighter supply drive Brent upwards
The front-month ICE Brent has inched higher by $0.24/bbl on the day, to trade at $86.11/bbl at 09.03 GMT.
PHOTO: Getty Images
Upward pressure:
Commercial US crude inventories fell by 10.58 million bbls in the week ended 25 August, according to the US Energy Information Administration (EIA). While the weekly stock draw fell short of the 11.49 million-bbls drop estimated by the American Petroleum Institute, US crude stocks have plunged to 422.92 million bbls for the first time since December last year.
Meanwhile, ING’s head of commodities strategy Warren Patterson expects Saudi Arabia to extend its voluntary output cut of 1 million b/d into October.
A potential extension of Saudi Arabia's production cut combined with a rapid decline in US crude oil inventories could lead to a significant tightening of supply in the global oil market.
News reports about a military coup in West Africa's Gabon have exacerbated supply concerns. OPEC member Gabon produced 210,000 b/d of oil in July, according to the International Energy Agency. “While the volumes [from Gabon] are relatively small, clearly any disruption in what is already a tight market does not help,” ING’s Patterson said.
Downward pressure:
On the flip side, a sharp rise in Brent futures could be capped by a possible increase in supply from Iran, Iraq and Venezuela.
Iran is expected to increase its oil output to around 3.4 million b/d by the end of summer. This will bring Iran's oil production near pre-sanction levels of 3.8 million b/d, Patterson noted. “This comes against the backdrop of apparently greater willingness between the US and Iran to improve diplomacy, evident with a recent deal for a prisoner swap and the release of frozen Iranian funds.”
Meanwhile, demand jitters amid China’s economic concerns remain a metaphorical thorn in Brent’s side.
“Tenacious economic apprehensions concerning China persist” despite optimism over additional policy measures, Stephen Innes, managing partner at SPI Asset Management said.
“The current perspective on China's growth trajectory has become increasingly fixated on the pivotal policy choices that Chinese authorities must navigate,” he added.
By Konica Bhatt
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