Oil prices spiked upwards early on Thursday on reports that China considers easing Covid restrictions. WTI price rose above $87 per barrel, before paring its gains and dropping back to $85 per barrel. 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.
China signaled on Thursday that it would partially ease its Covid policy, boosting oil prices. A recent flare-up of Covid cases had forced the local authorities to ramp up anti-Covid measures. China’s 20th Party Congress decided over the weekend to continue with its zero-Covid policy. China is the world’s largest energy importer and concerns about renewed lockdowns are stifling oil demand. It appears, however, that China may be finally ready to relax some of its strict Covid regulations. China’s zero-Covid policy has isolated the country and has dealt a heavy blow to its economy.
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 also 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.
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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