Oil prices tumble as Biden moves to suspend fuel taxes

Oil prices slid on Wednesday, as reports that US President Joe Biden would move to suspend fuel taxes, drove oil prices down. WTI fell to $103 per barrel before Biden’s address on gas prices. Oil prices rallied after his speech though, as the proposed federal tax cuts may not pass the Congresses’ approval. If the WTI price retreats, support can be found further down near $98 per barrel, while resistance can be found near the $121.2 per barrel level and higher up at $130 per barrel. 

Oil prices have tumbled to a four-week low, amid concerns that interest rate hikes could slow global economic growth, reducing energy demand. An increasing number of major Central Banks are moving towards a tighter fiscal policy to tame soaring inflation rates. Stalling economic growth, combined with fiscal tightening gives rise to fears of recession, pushing oil prices down. 

Last week, the US Federal Reserve voted to raise its benchmark interest rate by 75 points and the BOE by 25 base points. Other major banks, such as the Bank of Switzerland and the Bank of Canada, are also raising their interest rates, halting the ascend of oil prices. 

Tight oil supplies are supporting oil prices though, as many OPEC members continue to underperform, raising doubts on whether the organization can maintain its output goal.

Rising geopolitical tensions also support oil prices, as tight supply raises fears of an energy crisis, especially in the EU. The latest package of EU sanctions against Russia includes a ban on Russian oil imports that will effectively reduce EU oil imports from Russia by 90% by the end of the year and end the EU’s dependency on Russian oil. Russia is retaliating, however, by limiting its natural gas exports in certain EU countries, further exasperating the EU’s energy problem.

The oil demand outlook has increased, as in the summer, there is increased traveling and driving, boosting oil demand. The zero-Covid lockdown in Shanghai has officially ended, increasing the demand outlook and boosting oil prices. It seems however that Covid restrictions are not over in China, creating uncertainty in oil demand. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand, pushing prices down. 

US Crude Oil Inventories are scheduled to be released on Thursday and may affect oil prices.

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Written by:
Myrsini Giannouli

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