Oil prices extended losses on Wednesday, with WTI prices dropping to their lowest level in 2022. WTI continued trading below the $76.5 per barrel support, touching the $73.0 per barrel level. If the WTI price continues to retreat, it may encounter further support at $62.6 per barrel, while resistance may be found near $90.3 per barrel.
Global recession concerns limit oil demand outlook, driving oil prices down. China’s economic outlook remains poor after the prolonged Covid lockdowns. Covid cases in China have finally started to drop, leading Chinese authorities to relax some of the harsh Covid restrictions. The Chinese government eased some of its strident Covid regulations, abandoning its zero-Covid policy. The uncertainty over oil demand in China has influenced oil prices considerably as China is the world’s largest energy importer and zero-Covid restrictions severely limit oil demand. However, China’s easing of restrictions has already been priced in by markets, providing only a temporary boost to oil prices.
Oil prices have been dropping since the beginning of the week, despite the announcement of a Russian oil price cap during the weekend. G7 leaders have agreed to enforce a price cap of $60 per barrel, which is slightly lower than the current market level. The cap on Russian oil might limit supply, especially if Russia decides to retaliate by refusing to trade with countries that enforce the price limit. Oil prices plummeted since the announcement of the Russian oil cap, however, since markets were pricing in a tighter price limit. Fears that the price cap would reduce global crude supplies have prompted a wave of precautionary buying of oil in the past couple of months, driving oil prices up.
OPEC+ members agreed to continue oil production cuts into the next year to boost oil prices. The organization decided to curtail oil supplies by 2 million barrels per day, maintaining its previous decision made in October. OPEC’s oil production cuts are set to run throughout 2023, although the group stated that they would address market developments if necessary.
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