Macroeconomic factors in the US support Brent’s upward move

The front-month ICE Brent contract gained $1.07/bbl on the day, to trade at $83.87/bbl at 09.00 GMT.

PHOTO: An oil barrel and a pumpjack on US dollar bills. Getty Images

Upward pressure:

Brent futures traded higher on the back of strong macroeconomic growth factors in the US, like the nonfarm payrolls (NFP) and Consumer Price Index (CPI) figures, which exceeded expectations, according to some market analysts.

NFP, measured by the net change in US employment excluding farm workers, rose to 272,000 in May, the US Bureau of Labor Statistics (BLS) reported last week. This reading was much higher compared to the 165,000 recorded in April and exceeded the market expectation of 185,000.

Besides, inflation in the US, measured by the change in the CPI data, declined from 3.4% in April to 3.3% in May. “Key indicators show that inflation is cooling, which raises the prospect of a rate cut by the Fed,” ANZ Bank’s senior commodity strategist Daniel Hynes said.

Brent crude is expected to find further support from lower interest rates, which can weaken the greenback for non-dollar holders when they purchase dollar-denominated commodities like oil.

Oil demand is expected to rise during the summer driving season, pushing Brent’s price higher. “[Brent] oil surged which is driven by optimism about increased demand during the summer driving season,” analysts from Saxo Bank said.

Downward pressure:

Some downward pressure acting on Brent arises from an apparent slowdown in demand growth in the world’s second-largest oil-consuming nation – China.

The Asian country processed about 60.52 million mt (14.25 million b/d) of crude oil in May, 1.8% lower than a year ago, market intelligence provider JLC reported citing data from the National Bureau of Statistics (NBS).

“[Brent] oil prices were under pressure early in the session after data showed China’s oil refining fell to the lowest level this year,” Hynes added.

By Aparupa Mazumder

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