Supply concerns support Brent’s upward move

The front-month ICE Brent contract gained $1.35/bbl on the day, to trade at $78.20/bbl at 09.00 GMT.

PHOTO: Oil barrels with an arrow depicting higher prices. Getty Images

Upward pressure:

Brent futures extended yesterday’s gains amid growing supply concerns as oil investors continued to focus on geopolitical developments in the Middle East.

Oil market analysts and traders have been on the edge since last week, after the assassination of senior leaders of Tehran’s regional proxies – Hamas and Hezbollah armed groups. “An aggressive response could lead to wider conflict in the Middle East and threaten oil supply,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked.

Supply concerns have been exacerbated by production issues in Libya’s largest oil field. Libya's National Oil Corporation (NOC) declared force majeure in its El Sharara oil field on Tuesday, Reuters reports.

“Concerns about Middle East disruptions and a halt in Libya’s largest field output underpinned recent [Brent’s price] gains,” analysts from Saxo Bank remarked.

Commercial crude oil inventories in the US dropped by 3.73 million bbls to 429 million bbls in the week ending 26 July – the lowest since February, according to the US Energy Information Administration's (EIA). This news has further supported oil prices.

The EIA data shows that “demand for physical barrels remains robust, despite concerns about weak [US] economic activity,” Hynes added.

Downward pressure:

Weak demand growth in China, the world's second-largest oil consumer, has put downward pressure on Brent's price in recent weeks.

China imported 9.97 million b/d of crude oil in July, down by 12% from 11.30 million b/d imported in June, market intelligence provider JLC reported, citing data from the General Administration of Customs (GACC).

The East Asian country’s crude oil imports in July were about 3% lower compared to the same month last year. A fall in China's crude imports indicates a slowdown in the country's oil demand.

“Weaker Chinese oil demand was a key driver behind the weakness in oil prices,” two analysts from ING Bank said.

By Aparupa Mazumder

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