Oil prices dropped on Monday, with WTI price falling below the $84 per barrel level before paring some of the day’s losses. 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.
Lower-than-expected data for Chinese oil demand put pressure on oil prices on Monday. Although demand increased in September compared to August, Chinese crude oil import data is approximately 2% lower than last year. China is the world’s largest energy importer and concerns about renewed lockdowns are stifling oil demand. China’s zero-Covid policy has isolated the country and has dealt a heavy blow to its economy.
Global recession fears are also pushing oil prices down. Economic activity data on Monday fuelled global recession concerns, pushing oil prices down. Services and Manufacturing PMI data were lower than expected across the board, indicating economic contraction in Europe, the US, and the UK.
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 remained hawkish last week, boosting the odds of a sharp rate hike at the Fed’s next monetary policy meeting in November. A 75-bps rate hike is expected in November and has already been largely priced in by markets. Sharp rate hikes and continuous fiscal tightening run the risk of tipping some of the world’s leading economies into recession though.
The Biden administration announced the release more of barrels from the US Strategic Petroleum Reserves last week, 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.
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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