Brent Oil eases to levels near $96.00 after Israel and Lebanon ceasefire agreement
- Brent crude pulls back to $96.00 but remains nearly 5% up on the week.
- An agreement between Israel and Lebanon to implement the ceasefire has triggered moderate optimism
- The EIA reported a sharp drawdown in US Oil stocks last week, increasing concerns about a global Oil shortage.
Crude prices show a moderate reversal on Thursday, with Brent crude, the global oil benchmark, trading around $96 per barrel during the European trading session, down from highs at $98.00 on Wednesday. The price of the Brent barrel, however, remains nearly 5% up on the week as recent developments in the Middle East push back hopes of a swift end to the war and the reopening of the Strait of Hormuz.
News that Israel and Lebanon have agreed to implement the ceasefire triggered a mild relief on Thursday, yet far from an enthusiastic market reaction. Investors remain concerned by the deterioration of the relations between the US and Iran following hostilities earlier this week and Tehran’s announcement of the suspension of the peace talks with Washington.
In the US, the House of Representatives passed a resolution to block US President Donald Trump’s war powers, though it is unlikely to come into effect. The resolution will now be sent to the Senate and will require approval from two-thirds of both chambers if Trump vetoes it.
On Wednesday, data released by the Energy Information Agency (EIA) revealed that US Crude Oil stocks declined by 7.97 million barrels in the week of May 29, nearly twice the 4 million barrels drop expected, and following a 3.32 million drawdown in the previous week. These figures highlight the rapid depletion of global Oil reserves, and keep prices from dropping further amid concerns of an Oil shortage if the key Strait of Hormuz remains closed for a protracted period.
Brent Crude Oil FAQs
Brent Crude Oil is a type of Crude Oil found in the North Sea that is used as a benchmark for international Oil prices. It is considered ‘light’ and ‘sweet’ because of its high gravity and low sulfur content, making it easier to refine into gasoline and other high-value products. Brent Crude Oil serves as a reference price for approximately two-thirds of the world's internationally traded Oil supplies. Its popularity rests on its availability and stability: the North Sea region has well-established infrastructure for Oil production and transportation, ensuring a reliable and consistent supply.
Like all assets supply and demand are the key drivers of Brent Crude Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of Brent Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of Brent Crude Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact Brent Crude Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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