Oil prices rose to three-week highs on Thursday, as markets digested the news of OPEC’s output cuts on Wednesday. WTI price climbed above the $86.9 per barrel resistance, reaching the $89.0 per barrel level. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found at the $90.5 per barrel level.
OPEC+ met on Wednesday to discuss production levels amid a global energy crisis. The cartel 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. Despite mounting global recession risks, OPEC+ members strive to defend the $100 per barrel key level. Oil prices have been rising since OPEC’s unexpected decision, and many analysts predict that oil prices will climb back above $100 per barrel before the end of the year.
The US and the EU have been striving to convince the Saudis to increase oil output, provide some relief to the energy crisis, and deprive Russia of its huge earnings from oil exports. OPEC however seems to have turned its back on the West. The White House released a statement following OPEC’s decision, indicating disappointment in the “shortsighted decision… to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine.”
OPEC is determined to keep oil prices high, which have declined by as much as 25% since June. The slowing global economy and recession fears are undercutting oil demand and pushing oil prices down. High oil prices may push fragile economies into recession even faster though, creating a vicious cycle. In addition, oil prices are driven down by the shift of most major Central Banks towards a tighter monetary policy. Aggressive rate hikes stifle economic activity, fuelling recession fears and pushing oil prices down.
Oil prices are also supported by fears of further escalation in the Ukraine crisis. Russian President Vladimir Putin has renewed threats to halt all energy exports after western allies agreed to impose a cap on Russian oil prices. In addition, the energy crisis in Europe intensifies, as there were leaks in three major Russian gas pipelines, raising suspicions of sabotage. The cap on Russian oil prices is to be enforced soon and will provide further support to oil prices.
Oil demand is on the rise, as China, the world’s largest energy importer, is ending lockdowns. The start of the winter season will also signal a rise in oil demand boosting oil prices.
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