Oil prices spiked upwards on Wednesday on declining US crude oil inventories. WTI's price rose above $85 per barrel, before paring some of its gains. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found at the $93.4 per barrel level.
US crude oil inventories declined by 1.7M in the past week, against expectations of a gain of 2.5M. The unexpected drop in inventories in a tight market boosted oil prices.
The Biden administration announced the release more of barrels from the US Strategic Petroleum Reserves late on Wednesday, checking the ascend of oil prices. Oil prices remain high ahead of the US midterm elections, causing a headache for the US government. US President Joe Biden announced a plan to sell 15 million barrels from the SPR, representing the latest tranche of the 180-million-barrel program.
Global recession fears are also pushing oil prices down. Increasingly hawkish Fed rhetoric has promoted a risk aversion sentiment boosting the dollar and putting pressure on oil prices. Aggressive rate hikes stifle economic activity, undercutting oil demand. Fed rhetoric remains firmly hawkish, with FOMC policymakers Esther George and Mary Daly commenting over the weekend that the US Central Bank may need to step up its rate hikes to combat soaring inflation.
A recent flare-up of Covid cases in China has forced the local authorities to ramp up anti-Covid measures, putting pressure on oil prices. China’s 20th Party Congress decided over the weekend to continue with its zero-Covid policy, stifling oil demand. China is the world’s largest energy importer and concerns of renewed lockdowns are reducing demand, putting pressure on oil prices.
OPEC+ recently decided on a massive output cut of 2 million BPD starting in November. OPEC performed the largest reduction since 2020 in a bid to raise prices, led by Saudi Arabia and Russia. OPEC+ members strive to reclaim the $100 per barrel key level despite mounting global recession risks. The US and the EU have been striving to convince the Saudis to increase oil output and provide some relief to the energy crisis and also to deprive Russia of its huge earnings from oil exports. OPEC however seems to have turned its back on the West.
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