Geopolitical jitters fuel Brent crude’s rally

The front-month ICE Brent contract has gained by $0.65/bbl on the day, to trade at $74.28/bbl at 09.00 GMT.

IMAGE: Crude oil barrels. Getty Images

Upward pressure:

Brent futures have moved higher amid escalating geopolitical tensions in the Middle East.

The ongoing feud between Israel and Iran has threatened oil supply in the region, adding risk premiums to oil prices, according to market analysts.

“The nature of Israel and Iran's attacks on each other over the weekend suggests [that] risks to the oil market have escalated in this latest phase of the Middle East conflict,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked.

On Monday, US President Donald Trump called for the evacuation of Tehran amid growing fears of further escalation of the conflict in the region. His comments have renewed volatility in the broader financial markets, two analysts from ING Bank said.

The conflict has reignited concerns over the use of key oil transit chokepoints in the region, including the Strait of Hormuz, the Gulf of Aden and the Bab al-Mandab Strait.

“The market remains on edge with the biggest fear a potential blockage of the Strait of Hormuz, which would lead prices to soar further,” the analysts said.

Downward pressure:

Brent’s price has felt some downward pressure due to growing OPEC+ output.

The total crude oil production by OPEC+ members averaged 41.23 million b/d last month, about 180,000 b/d higher than in April, the group said in its latest oil market report.

Oil production by OPEC+’s de-facto leader Saudi Arabia, increased by 177,000 b/d in May to 9.18 million b/d, while the UAE increased its output by 27,000 b/d to about 3 million b/d last month.

Earlier this month, the Vienna-headquartered coalition agreed to increase output by 411,000 b/d for July, maintaining the same monthly increase it has implemented in the past three months.

By Aparupa Mazumder

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