Sanguine market outlook pushes Brent above $88/bbl
Front-month ICE Brent has increased by $0.79/bbl on the day, to $88.33/bbl at 09.00 GMT.
PHOTO: Oil storage tanks in Victoria Harbour, Hong Kong. Getty Images
Upward pressure:
The International Energy Agency has called China and Russia the two “wild cards” that will dominate the oil markets this year, and so far, the prediction is proving accurate.
The Spring Festival is expected to spur higher outbound travel from China, which has had a dormant economy for the last three years. The Chinese transport ministry has estimated that nearly 2.1 billion trips will be taken over the seven-day festival.
EU sanctions and G7 price caps on refined Russian oil products from 5 February have added to concerns over potential declines in Russian oil production, which could tighten global supply.
According to the US Treasury Department, the “price cap coalition” agreed to a two-cap approach for refined products. One cap would apply to products like diesel and gasoline, which "generally trade at a premium to crude," while the other would apply to products like fuel oil, which "trade at a discount to crude.”
But while the G7, EU and Australia coalition has set a price cap of $60/bbl for seaborne Russian crude, it has not set numbers on the two proposed price caps for refined products.
“Technical factors also supported the move, with Brent crude crossing its 100-day moving average for the first time since November. Bullish bets on Brent futures have also risen to a two-month high,” says ANZ commodity strategist Daniel Hynes.
Downward pressure:
On the flip side, OANDA analyst Edward Moya has said that “crude prices are wavering as the dollar stabilises and over exhaustion from China-reopening headlines. Oil should be stuck in wait-and-see mode until we learn more about the health and outlook of the US economy.”
US President Joe Biden will veto a House Republican legislation that seeks to restrict the president's ability to tap into the country's strategic petroleum reserves (SPR) until additional oil and gas leases are approved, according to Secretary of Energy Jennifer Granholm.
Last year, Brent slumped as the US filled inventory gaps in the oil market following its 180 million b/d SPR drawdown. If the president vetoes the bill and releases additional oil reserves, the global oil market will likely see US oil supply increase, which could add downward pressure on Brent.
By Konica Bhatt
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