Oil prices extend gains on tightening supply

Oil prices extended gains on Monday, with WTI price climbing to the $82 per barrel level. If the WTI price declines, it may encounter support near $75.9 per barrel, while resistance may be found near $83.4 per barrel.

Supply concerns have been keeping oil prices up. OPEC+ members recently decided that the 1 million barrels per day cut would be extended beyond July and into August. Increased expectations that Saudi Arabia will extend the output cut of 1 million barrels per day for another month to include September, drove oil prices up on Monday.

Deterioration in China’s economic outlook is keeping oil prices down. Uncertainty over China’s economic recovery has put a cap on oil prices. China is the world’s largest importer and a weaker Chinese oil demand outlook has put pressure on oil prices. 

There is, however, speculation that the Chinese government may announce a massive stimulus package later this month to boost its struggling economy. Expectations of Chinese stimulus have increased the oil demand outlook, boosting oil prices. Chinese officials have pledged to step up policy support for the economy, causing oil prices to spike. It has been reported, however, that China is holding off on major stimulus for now. 

The Fed’s hawkish monetary policy has reduced the oil demand outlook, putting pressure on oil prices. The U.S. Federal Reserve raised interest rates by 25 basis points last week to a target range of 5.25% to 5.50%, the highest level in 22 years. 

The Fed’s decision to resume economic tightening, however, was widely anticipated and had already been priced in by markets. Oil prices continued to rise despite the announcement of fresh rate hikes. Cooling US inflation rates have shifted Fed interest rates expectations towards a less hawkish direction. The prospect of a lower rate ceiling than previously anticipated increases the oil demand outlook, boosting oil prices.

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Written by:
Myrsini Giannouli

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