Macroeconomic and supply jitters force Brent futures sideways in May
The front-month ICE Brent contract has declined by $0.72/bbl on the day from Friday, to $75.55/bbl at 09.00 GMT.
PHOTO: Getty Images
Upward pressure:
Wildfires in Canada’s oil-rich province of Alberta, and Turkey’s refusal to restart Kurdish crude exports from the Ceyhan terminal, have kept substantial quantities of crude oil off the market.
Supply concerns have been further magnified by a Baker Hughes report, which shows a slowdown in US drilling activity despite the Biden administration's plans to replenish its strategic petroleum reserves. The oilfield services provider says the US oil rig count fell by 11 in the latest week to 575 - the lowest since June 2022.
Meanwhile, the International Energy Agency (IEA) has estimated that global crude demand – led by China and India – will surpass production by almost 2 million b/d this year, resulting in a supply deficit in the second half of 2023.
Downward pressure:
Sentiment in the oil market has been clouded by the ongoing US debt-ceiling saga that has yet to produce a positive result. The US Secretary of the Treasury, Janet Yellen, has warned of a 1 June deadline for raising the debt ceiling, and White House economists have forecast crippling effects should the nation default on its debt obligations.
On the other hand, while there have been a few moments of optimism about a demand surge in both China and India and a resultant tightening of supply, the scenario has not materialised as expected.
Recent positioning data indicates that traders are "bearish" on the oil market, ING’s head of commodity strategy Warren Patterson has written in a note.
“… speculators remain negative towards the market with the net speculative long in ICE Brent falling by 6,020 lots over the last reporting week to 106,722 lots as of last Tuesday. This is the smallest position that speculators have held this year,” Patterson added.
By Konica Bhatt
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