Oil prices were steady on Monday, with tight supply balanced against slowing global economic growth. WTI traded around $110 per barrel remaining below the $112 per barrel support. If the WTI price retreats, support can be found further down near $98 per barrel, while resistance can be found near the $121.2 per barrel level and higher up at $130 per barrel.
Oil prices have tumbled to a four-week low, amid concerns that interest rate hikes could slow the global economy, reducing energy demand. Last week, the US Federal Reserve voted to raise its benchmark interest rate by 75 points and the BOE by 25 base points. Other major banks, such as the Bank of Switzerland and the Bank of Canada, are also raising their interest rates, halting the ascend of oil prices.
Tight oil supplies are supporting oil prices though, as many OPEC members continue to underperform, raising doubts on whether the organization can maintain its output goal.
Rising geopolitical tensions also support oil prices, as tight supply raises fears of an energy crisis, especially in the EU. The latest package of EU sanctions against Russia includes a ban on Russian oil imports that will effectively reduce EU oil imports from Russia by 90% by the end of the year and end the EU’s dependency on Russian oil. Russia is retaliating, however, by limiting its natural gas exports in certain EU countries, further exasperating the EU’s energy problem.
This week, oil prices may rally again, as markets will have had time to digest the news of the rate hikes. The oil demand outlook has increased, as in the summer, there is increased traveling and driving, boosting oil demand. The zero-Covid lockdown in Shanghai has officially ended, increasing the demand outlook and boosting oil prices. It seems however that Covid restrictions are not over in China, creating uncertainty in oil demand. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand, pushing prices down.
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