Strong US dollar, China demand concerns cap Brent price gains
Front-month ICE Brent has increased by $0.20/bbl on the day, to $94.97/bbl at 09.00 GMT.
PHOTO: The US Energy Information Administration has reported that commercial US crude oil stocks are at a four-week low. Getty Images
Upward pressure:
The Energy Information Administration (EIA) has reported that commercial US crude oil stocks are at a four-week low of 436.83 million bbls, with a draw of 3.12 million bbls in the week to 28 October. Meanwhile, US strategic petroleum reserves have fallen below the crucial 400-million-bbl mark and now stand at 399.8 million bbls, the lowest level since May 1984.
The oil price has also been supported by concerns that geopolitical tensions in major oil producers such as Russia and the Middle East, mainly Saudi Arabia, could disrupt production amid already constrained supplies.
The US has alleged that intelligence reports point to an imminent attack on the Saudi energy infrastructure by Iran. This warning has prompted Saudi Arabia, the US, and other Middle Eastern countries to strengthen their national security. However, Iran's media outlets are reporting that Iranian officials have deemed the reports "baseless."
Saudi Arabia-based organisation of global energy ministers, the International Energy Forum (IEF), argues that oil market losses could range from 1-3 million b/d in the near term as a result of EU sanctions on Russian oil. Bloomberg TV quotes IEF secretary general Joseph McMonigle as saying, "If 3 million bbls of Russian oil are lost, Brent will easily break $100/.bbl."
Downward pressure:
Oil markets continue to be roiled by China's demand jitters, as the official Caixin Global survey indicates a decline in services activity for the second consecutive month. According to Caixin, “Covid-19 outbreaks and strict containment measures have disrupted business operations and crippled overseas demand.”
The US dollar has strengthened after US Federal Reserve (Fed) Chair Jerome Powell's hawkish remarks indicate that interest rate hikes would not be paused. Powell has called a pause "premature" and said the Fed still has "a long way to go" after raising its benchmark interest rate by 75 basis points in the November monetary policy.
“The Fed's confirmation of higher interest rates could lead to further pressure on oil's future markets,” says Tina Teng, CMC market analyst, adding that “a strong dollar is dragging down oil prices, and some players may also be booking profits following recent gains.”
By Konica Bhatt
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