Crude oil stock build puts lid on oil prices

Oil prices spiked on Wednesday, with WTI price touching the $79.7 per barrel level before paring some of the day’s gains. If WTI price declines, it may encounter support near $75.5 per barrel, while resistance may be found near $80.0 per barrel.

Oil prices were propelled upwards on Tuesday by reports that OPEC+ is considering extending its voluntary output cuts throughout the year. OPEC+ has so far decided to keep its oil output policy unchanged, maintaining the voluntary production cuts that have already been in place. The organization is enforcing substantial production cuts to keep oil prices high. The production cuts are limiting oil supply effectively, as OPEC oil output in January dropped by 410K barrels per day compared to December’s output. 

Oil prices continued to rise in early trading on Wednesday but pared gains later in the day on a large US crude oil stock build. US crude oil inventories released on Wednesday showed that US crude stockpiles exceeded expectations, putting a lid on oil prices. The US Energy Information Administration reported a weekly crude stockpile build of 4.2M barrels for the week to February 23rd, against expectations of a 3.1M barrel raise and following a build of 3.5M barrels the week before.

Raging tensions in the Middle East boost oil prices. Supply concerns provide support for oil prices, as the crisis in the Gaza area threatens to disrupt oil distribution. Tensions around the Red Sea area have been rising, raising concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. Iran-backed Houthi militants are attacking commercial vessels in the Red Sea, raising concerns about oil supply. 

Reduced global oil demand outlook is putting pressure on oil prices. Several major economies, such as the British and the Japanese, have slipped into recession, while other countries are on the brink of recession. 

China’s poor economic outlook is increasing concerns of reduced oil demand, putting a lid on oil prices, despite increasing geopolitical risks. Weak economic growth in China raises concerns about future demand, pushing oil prices down. 

A strong US dollar and high-interest rates also keep oil prices in check. The Fed kept interest rates unchanged at its latest policy meeting in January, within a target range of 5.25% to 5.50. 

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Written by:
Myrsini Giannouli

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