Oil prices volatile as OPEC meeting looms

Oil prices were volatile on Thursday, gaining strength in early trading and then plummeting. WTI price rose to $78.9 per barrel then dropped below $77.0 per barrel. If WTI price declines, it may encounter support near $76.7 per barrel, while resistance may be found near $80.4 per barrel.

Oil prices exhibited high volatility on Thursday ahead of the highly anticipated OPEC meeting next week. OPEC+ kept existing output cuts in place at its latest meeting, boosting oil prices. OPEC kept its output policy steady in April, maintaining its voluntary production cuts of 2.2 million barrels per day. Reports on whether the organization will extend its voluntary cuts vary, causing uncertainty in the oil demand outlook and inducing volatility in oil prices. 

Oil prices were under pressure on Wednesday by 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 1.8M barrels for the week to May 17th, against expectations of a 2.4M barrel draw and following a drop of 2.5M barrels the week before.

Oil prices dipped this week on a reduced demand outlook. Markets anticipate that sticky US inflation will keep Fed interest rates at high levels for longer. Oil prices are kept in check by high Fed interest rates. The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. The US Fed is keeping interest rates at a 23-year high, restricting economic growth and limiting the oil demand outlook as a result.

Odds of rate cuts are becoming more moderate, putting pressure on oil prices, as policymakers have stated that they do not intend to start reducing interest rates until there is more evidence of disinflation. Hawkish Fedspeak this week has lowered market expectations of rate cuts driving oil prices down.

Supply concerns provide support for oil prices, as the crisis in the Middle East threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution.

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Written by:
Myrsini Giannouli

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