Oil prices collapsed on Tuesday on global recession concerns. WTI price fell below the $103 per barrel support early in the day, and fell further down past the $98 per barrel support later in the day, reaching $95 per barrel. If WTI continues to decline, it may encounter support near $90 per barrel, while resistance can be found near the $112 per barrel level and higher up at $115 per barrel.
Heightened global recession fears have recently reduced the oil demand outlook, putting pressure on oil prices. Concerns that interest rate hikes could slow global economic growth reducing energy demand have pushed oil prices down. Stalling economic growth combined with fiscal tightening and soaring inflation gives rise to fears of recession, halting the ascend of oil prices.
Uncertainty over China’s oil demand is causing fluctuations in oil prices. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand, pushing prices down. Last week, reports that China plans to stimulate its economy via a large stimulus package boosted the oil demand outlook. This week, however, reports of massive Covid testing in China and renewed restrictions have reignited fears of extensive lockdowns, pushing oil prices down.
Oil supplies remain tight, however, supporting oil prices. In their latest meeting, OPEC+ members discussed output goals for August but refrained from setting a goal for September’s production. OPEC+ maintained its output policy and kept its production goals for August to the same levels agreed in its previous meeting, raising its output by approximately 648,000 barrels a day. It remains to be seen, however, whether the bans on Russian oil will allow the organization to reach its output quotas.
Many OPEC members continue to underperform, raising doubts about whether the organization can maintain its output goal, and adding to supply concerns. On Tuesday, OPEC+ data showed that the organization produced 24.8 million barrels per day of crude oil in June, with production falling 1 million BPD short of the target levels. In addition, OPEC’s first forecast report for 2023 indicated that demand will continue to outpace supply, leading to oil shortages.
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