Oil prices declined on Tuesday, dropping near the $83 per barrel level. If the WTI price declines, it may encounter support near $82 per barrel, while resistance can be found near $90.5 per barrel and higher up at the $98 per barrel level.
Rising odds of aggressive rate hikes push oil prices down. Severe rate hikes stifle economic activity fuelling recession fears. The ECB performed its largest rate hike ever, increasing its interest rate by 75 bps. The global economic slowdown and recession concerns are decreasing the oil demand outlook, putting pressure on oil prices.
This week, oil prices will likely be affected by the outcome of two major monetary policy meetings, those of the Fed and the BOE, on the 21st and the 22nd respectively. The Fed is expected to perform a steep rate hike with market odds in favor of a 75-bp increase in interest rates. The BOE is expected to set a more conservative tone and may opt for a 50-bp rate hike this time. Both rate hikes have been largely priced in by markets but may still put pressure on oil prices. In case the Fed moves towards a more hawkish fiscal policy, oil prices are likely to decline further.
Oil prices are also weakened by concerns of declining demand as China steps up Covid measures. China, which is the world’s largest oil importer, has introduced new Covid lockdowns in several parts of the country.
Supply woes are keeping oil prices up. OPEC+ reportedly missed its production target by 3.583 million barrels per day in August. An oil spill at Iraq's Basra terminal increased supply concerns, boosting oil prices. A US rail strike that would hinder oil distribution was averted last week after workers reached an agreement with the rail union.
In addition, prospects of reviving the 2015 Iran nuclear deal have decreased considerably. New hurdles in the negotiations have raised doubts on whether Iran is committed to the deal. If the deal goes through, it can add more than a million barrels of oil per day to the global market providing some relief to oil demand.
OPEC+ members have agreed to cut down production by 100,000 barrels per day to offset the potential return of Iranian barrels to oil markets. The organization has seen oil pricing slipping over the past month and has decided to curtail oil production to keep oil prices high. OPEC+ members strive to defend the $100 per barrel key level, despite mounting global recession risks.
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