Brent Crude Nears $86 as Market Eyes Third Quarter Demand Surge

Brent crude oil prices edged closer to $86 per barrel as heightened expectations of a robust demand surge during the third quarter of the year.

This upward momentum comes amidst forecasts of an eventual drawdown in inventory levels and escalating geopolitical tensions in the Middle East.

As of Wednesday, Brent crude oil rose by 63 cents, or 0.7% to $85.64 a barrel, while the U.S. West Texas Intermediate (WTI) crude oil climbed 74 cents, or 0.9%, to $81.57.

“The ubiquitous view is that demand will increase during the summer,” remarked Tamas Varga, an oil broker at PVM. “Geopolitics is still seen as a supportive element of the equation.”

Despite a stronger dollar, which typically makes dollar-priced oil more expensive for buyers holding other currencies, the market remained resilient.

The dollar index was up 0.18%, underscoring currency strength amid expectations of potential rate cuts by the end of the year.

Analysts and industry experts pointed to anticipations of significant inventory drawdowns during the peak third quarter demand season as a key factor bolstering current prices.

The American Petroleum Institute (API) had earlier reported a modest increase in U.S. crude oil stocks, but market sources anticipate a substantial decline of nearly 3 million barrels in official inventory data expected later in the day from the Energy Information Administration (EIA).

“Suvro Sarkar, energy sector team lead at DBS Bank, noted, “It seems the market is shrugging off demand concerns for now, anticipating inventory drawdowns in peak third quarter demand season.”

Furthermore, strength in front-month oil prices indicated robust physical demand, a positive sign for near-term price stability and market buoyancy.

Analysts from JP Morgan highlighted in a client note that key indicators in the oil market are signaling a rebound supported by a stronger underlying physical market.

Geopolitical tensions also played a significant role in boosting oil prices. Recent incidents, including Houthi attacks on shipping in the Red Sea and escalating hostilities between Israel and Hezbollah in Lebanon, added to market uncertainties and contributed to bullish sentiments.

“The Houthis have so far sunk two vessels and seized another, and said on Tuesday they used a missile to hit a vessel in the Arabian Sea,” Sarkar explained, emphasizing the geopolitical risks influencing oil price dynamics.

As Brent crude approaches the $86 mark, attention remains focused on ongoing geopolitical developments, inventory data releases, and global economic indicators that could continue to sway oil market movements in the coming weeks.