Oil prices remained strong on Thursday, with WTI trading above $110 per barrel. If the WTI price drops, support can be found at the $94.5 per barrel level and further down at the $90 per barrel level, while resistance can be found near $118.3 per barrel.
Oil prices are especially volatile, as competing factors affect oil supply and demand. Stalling global economic growth and lockdowns in China dampen demand. Covid restrictions in China have raised fears of a large decrease in global oil demands. China is the largest importer of crude oil and the strict Covid lockdowns had been reducing global oil demand. The large economic hub in Shanghai has been in a zero-Covid lockdown for weeks now. China’s capital city of Beijing is not under zero-Covid lockdown yet, but has strict Covid restrictions in place, limiting oil demand.
The crisis between Russia and Ukraine however, has been intensifying concerns of disruptions in oil distribution, supporting oil prices. The US has already banned all oil and gas imports from Russia, with as many as 3 million barrels per day of Russian crude oil potentially removed from the market as a result of sanctions and of boycotting of Russian oil.
The EU has been so far hesitant to enforce an embargo on Russian oil, as many of its member states, and especially Germany, depend heavily on Russian oil imports. On Thursday however, a new package of Russian sanctions was outlined by the EU. The new sanctions include a severe ban on Russian oil crude imports. Even though the ban, if enforced, will likely throw the Eurozone into an energy crisis, the ban will not take effect for another six months. The EU is hesitant to cut off Russian oil imports abruptly, as most EU member states are in favor of gradually weaning off Russian oil imports. Expectations of an EU ban propped up oil prices on Thursday, although the effect of the new EU sanctions was moderated since their enforcement would not be immediate.
On Thursday, OPEC+ decided to raise its production output by a modest 432,000 barrels per day for next month. OPEC members responded to the plans of an EU ban on Russian oil by raising their production targets. OPEC’s announcement halted the rally of oil prices a little on Thursday, alleviating global oil demand a little.
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