Brent Crude Holds Near Seven-Week High as U.S. Inventory Draw Counterbalances Demand Concerns

Global energy markets are navigating a complex landscape of tightening supply and uncertain demand projections. Brent crude futures settled near $85.70 a barrel on Thursday, hovering around a seven-week high. The primary driver for the recent bullish sentiment was the U.S. Energy Information Administration (EIA) report, which showed a substantial 2.5 million barrel draw in commercial crude inventories for the week ending June 14. This exceeded analyst expectations and signaled that the summer driving season in the Northern Hemisphere is beginning to strain supplies.\n\nWhile inventory draws provided a price floor, the market remains capped by ongoing concerns regarding China's economic recovery. Data from May indicated that Chinese refinery throughput fell by 1.8% year-on-year, suggesting that the world's largest oil importer may be facing a slower-than-expected industrial rebound. However, the geopolitical risk premium remains a critical factor. The ongoing Houthi attacks in the Red Sea and the potential for a northern front opening in Israel have kept traders on edge, preventing any significant sell-offs despite high interest rates in the West.\n\nInvestment banks, including Goldman Sachs and JP Morgan, have maintained their outlook for Brent to trade in the $80-$90 range through the third quarter. They cite OPEC+ production cuts as the foundational support for these levels. OPEC+ recently agreed to extend most of its deep oil output cuts into 2025, although it outlined a plan to gradually phase out voluntary cuts starting in October if market conditions allow. For now, the focus remains on the Strait of Hormuz and the Bab el-Mandeb strait. Any disruption to these transit points would likely send Brent toward the $100 mark, though current shipping data shows that while costs have increased due to rerouting, physical supply volumes to Asia remain largely intact via the Cape of Good Hope.\n\nMarket participants are also closely monitoring the U.S. Federal Reserve's stance on interest rates. Higher rates typically strengthen the dollar, making oil more expensive for holders of other currencies, which can dampen demand. However, the current geopolitical tension appears to be outweighing macroeconomic headwinds. In the physical market, North Sea grades are showing signs of strength, with premiums rising as European refiners seek alternatives to Middle Eastern grades that face transit delays. The spread between Brent and WTI has also widened slightly, reflecting the localized tightness in the Atlantic Basin.