WTI drops to yearly low

Oil prices extended Monday’s losses on Tuesday, with WTI prices dropping to their lowest level in 2022. WTI fell below the $76.5 per barrel support, touching the $73.5 per barrel level for the first time since the start of the war in Ukraine. If the WTI's price continues to retreat, it may encounter further support at $62.6 per barrel, while resistance may be found near $90.3 per barrel.

Oil prices have been dropping since the beginning of the week, despite the announcement of a Russian oil price cap during the weekend. G7 leaders have agreed to enforce a price cap of $60 per barrel, which is slightly lower than the current market level. The cap on Russian oil might limit supply, especially if Russia decides to retaliate by refusing to trade with countries that enforce the price limit. Oil prices plummeted since the announcement of the Russian oil cap, however, since markets were pricing in a tighter price limit. Fears that the price cap would reduce global crude supplies have prompted a wave of precautionary buying of oil in the past couple of months, driving oil prices up.

OPEC+ members agreed to continue oil production cuts into the next year to boost oil prices. The organization decided to curtail oil supplies by 2 million barrels per day, maintaining its previous decision made in October. OPEC’s oil production cuts are set to run throughout 2023, although the group stated that they would address market developments if necessary.

Covid cases in China have finally started to drop, boosting the oil demand outlook and oil prices. After days of protests against the crippling Covid lockdowns, Chinese authorities finally seem ready to relax some of the harsh Covid restrictions. The Chinese government eased some of its strident Covid regulations, abandoning its zero-Covid policy. The uncertainty over oil demand in China has influenced oil prices considerably as China is the world’s largest energy importer and zero-Covid restrictions severely limit oil demand. 

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Written by:
Myrsini Giannouli

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