Oil prices rose on Tuesday, with WTI price dropping below the $76.4 per barrel level, but recovering later in the day, regaining the $79.0 per barrel level. If the WTI price declines, it may encounter support near $78.2 per barrel, while resistance may be found near $82.3 per barrel.
The International Monetary Fund has revised its global economic growth outlook, easing recession concerns. According to the IMF World Economic Outlook, the global economy is expected to grow by 2.9% this year, boosting oil demand expectations.
Oil prices are also supported by optimism over China’s economic recovery. China’s economy has suffered from prolonged lockdowns and the country’s debt has ballooned over the past few years. The Chinese government recently eased some of its strident Covid regulations, abandoning its zero-Covid policy. China has re-opened its borders after almost three years, fuelling hopes of economic recovery. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand.
In addition, US inflation seems to be cooling, which may give the Federal Reserve some leeway towards scaling back its interest rate increases, and the Fed may pivot towards a more dovish direction in its policy meeting this week. Aggressive rate hikes stifle economic activity fuelling recession fears. As inflation starts to cool though, central banks are starting to lower the pace of rate hikes, raising oil demand expectations.
This week is packed with news that may determine the direction of oil prices. The highly anticipated Fed meeting on Wednesday is likely to affect oil prices significantly. Markets are pricing in a low 25-bp rate hike, as the Fed is expected to pivot towards a less aggressively hawkish policy this year.
EU leaders have yet to reach an agreement on the price cap of Russian oil exports. Meanwhile, the Russian oil supply remains strong, suggesting that the sanctions have not significantly reduced Russian oil sales.
OPEC-JMMC Meetings on Wednesday are also likely to cause volatility in oil prices. The organization is likely to keep output target levels the same, but any shift in OPEC’s policy will likely cause oil price volatility.
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