Resumption of the Druzhba pipeline knocks Brent price down

Front-month ICE Brent has decreased by $2.00/bbl on the day, to $92.33/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

US commercial crude stocks fell by 5.40 million bbls to a six-week low of 435.36 million bbls, according to official Energy Information Administration data. The draw is bigger than the 440,000-bbl drop estimated by analysts polled by Reuters. Volumes of crude released from US strategic petroleum reserves have accelerated to 4.10 million bbls.

The International Energy Agency (IEA) has warned of “diesel tensions” as oil inventories in developed nations have slumped to their lowest level since 2004. The IEA also expects global oil supply to decline by 1 million b/d for the remainder of 2022 as OPEC+ output cuts and EU sanctions on Russian crude come into effect.

Goldman Sachs' global commodities chief Jeff Currie predicts Brent crude to reach $115/bbl by early next year. He has told CNBC that a combination of sanctions on Russian oil, China ending its lockdown, and disappointing US shale production will create a supply shortage from December.

Downward pressure:

Russian state-owned pipeline operator Transneft has reported that crude flows through the Druzhba pipeline's southern branch have resumed after having been temporarily suspended. Hungary's foreign minister Peter Szijjarto has confirmed the statement in a video posted to social media.

China is contending with rising Covid-19 cases, while the oil market is grappling with jitters surrounding China's oil demand.

SPI Asset Management’s managing partner Stephen Innes says, “with Covid cases in China continuing to rise, especially as we move towards flu season, traders are left with little option to recalibrate positions reflecting the possibility of more lockdowns in heavily populated centers that hurt oil demand exponentially more than other areas of the economy.”

Warren Patterson, head of commodities strategy at ING says, “with geopolitical risks having subsided somewhat, demand concerns have once again taken centre stage for the oil market. Chinese demand remains a concern.”

By Konica Bhatt

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