Oil prices rise on supply concerns

Oil prices extended gains on Tuesday, with WTI price touching the $80 per barrel level. If the WTI price declines, it may encounter support near $73.8 per barrel, while resistance may be found near $83.4 per barrel.

The Energy Information Administration is due to release crude oil inventory data on Wednesday. Preliminary reports estimate that crude inventories fell by over 2 million barrels in the week to July 21. Supply concerns combined with increased demand expectations from China, boosted oil prices on Tuesday.

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 increased oil demand outlook this week, boosting oil prices. Chinese officials pledged on Monday 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 U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in well over a year. Fed officials have voted to keep the central bank’s interest rate at a target range of 5.00% to 5.25%. 

The Fed has signaled that its tightening cycle is not over yet, and market odds are in favor of another rate hike at the next policy meeting on Wednesday. Most analysts expect that the US central bank will raise interest rates by 25-bp on Wednesday. 

There is considerable doubt on whether the Fed will continue hiking rates after this week’s rate increase. 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.

Global economic concerns have also been weighing oil prices down, raising concerns about further oil production cuts. OPEC+ members have decided that the current 1 million barrels per day cut would be extended beyond July and into August. Additionally, Russia will reduce its output by 500,000 barrels per day.

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Written by:
Myrsini Giannouli

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