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Oil prices drop as US crude oil stocks rise

Home >  Daily Market Digest >  Oil prices drop as US crude oil stocks rise

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Written by:
Myrsini Giannouli

09 February 2023
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Oil prices dropped on Thursday, with WTI prices declining to $76.5 per barrel. If the WTI price declines, it may encounter support near $72.4 per barrel, while resistance may be found near $82.3 per barrel.

US crude oil stocks continued to rise this week, putting pressure on oil prices. US crude oil inventory data on Wednesday showed a rise of 2.4 million barrels, exceeding expectations of a rise of 2.0 million barrels, putting pressure on oil prices.

Fed rhetoric this week was hawkish, pushing oil prices lower. The initial market interpretation of Fed members’ speeches was ambiguous, as markets have been anticipating a pause in rate hikes after the Fed’s next policy meeting. Repeated speeches by Fed members though have begun to drive the message home that further rate rises should be expected and that interest rates will need to remain high for a long period. Oil prices dipped on Thursday as market odds began to swing in favor of the Fed raising interest rates further.

Fed Chair Jerome Powell reiterated on Tuesday that the disinflation process has begun but emphasized that it still has a long way to go. Recession concerns still run high and aggressive rate hikes stifle economic activity, limiting the oil demand outlook. As inflation starts to cool though, central banks are starting to lower the pace of rate hikes, which may raise future oil demand expectations. 

Oil prices are supported by optimism over China’s economic recovery. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. Fatih Birol, chief of the International Energy Agency stated on Sunday that he expects half of global oil demand growth this year to come from China. The Chinese government has 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. 

A price cap on Russian oil exports was set on February 5th. G7 leaders set the price cap of Russian oil exports at $100 per barrel on diesel and other products that trade at a premium to crude and $45 per barrel for products that trade at a discount. 

The outcome of the OPEC-JMMC Meetings last week caused oil prices to tumble. The organization kept output target levels unchanged, maintaining the production cuts agreed to in October. These included cutting back 2 million barrels daily to balance out reduced demand. 

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Written by:
Myrsini Giannouli

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