Oil prices continued to decline on Tuesday on reports that the US prepares to tap its petroleum reserves. WTI price touched $82 per barrel on Tuesday, before climbing back to $83 per barrel. 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.
Reports that the Biden administration prepares to release more barrels from the US Strategic Petroleum Reserves pushed oil prices down on Tuesday. Oil prices remain high ahead of the US midterm elections, causing a headache for the US government. 10-15 million barrels will reportedly be released from the SPR this week, representing the latest tranche of the 180-million-barrel program. There are even reports that the Biden administration is considering tapping the SPR further, extending its original plan to bring fuel prices down.
Global recession fears are also pushing oil prices down. 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 remains firmly hawkish, with FOMC policymakers Esther George and Mary Daly commenting over the weekend that the US Central Bank may need to step up its rate hikes to combat soaring inflation.
A recent flare-up of Covid cases in China has forced the local authorities to ramp up anti-Covid measures, putting pressure on oil prices. China’s 20th Party Congress decided over the weekend to continue with its zero-Covid policy, stifling oil demand. China is the world’s largest energy importer and concerns of renewed lockdowns are reducing demand, putting pressure on oil prices.
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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