Tight supply concerns help Brent to recover previous day’s losses

The front-month ICE Brent contract has gained $1.21/bbl on the day, to trade at $93.68/bbl at 09.00 GMT.

PHOTO: Oil pump jacks positioned in front of the Russian flag. Getty Images

Upward pressure:

Brent futures gained upward thrust as concerns about tight global supply exacerbated after Russia announced a temporary ban on its gasoil and diesel exports.

The Russian government on Thursday implemented temporary restrictions on exports of gasoil and diesel to stabilise the supply in the domestic market, reported Russian state media agency TASS.

“The heating oil crack spread is rallying on reports that Russia is going to temporarily limit fuel and diesel,” said Price Futures Group’s senior market analyst Phil Flynn.

“With diesel supplies tight and with Saudi Arabia and Russia using their energy dominance to respond to consuming nations using their reserves to try to control prices, it is now starting to take its toll as global oil inventories tighten,” Flynn added.

Downward pressure:

The US Federal Reserve (Fed) decided to pause its rate hike cycle for September, at its latest Federal Open Market Committee (FOMC) meeting. However, oil analysts have deemed the outcomes of the meeting ‘hawkish’ as the Fed might start increasing interest rates later this year.

“The Fed can’t produce oil but can try to slow the economy to reduce the growing supply versus demand deficit,” Flynn said.

Higher interest rates typically increase the buying cost for non-dollar holders while purchasing dollar-denominated commodities like oil.

“Higher for longer was the key message from yesterday's [Wednesday’s] FOMC meeting, which has weighed on risk assets, including oil,” commented analysts from ING.

By Aparupa Mazumder

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