Oil prices firm as recession concerns balance out supply fears

Oil prices remained firm on Monday, with WTI price oscillating around the $75.2 per barrel level. If the WTI price declines, it may encounter support near $70.2 per barrel and further down at $62.6 per barrel, while resistance may be found near $82.9 per barrel.

Oil prices are being driven by opposing market forces. China’s economic reopening has increased the oil demand outlook, boosting oil prices. The Chinese government has eased some of its strident Covid regulations, abandoning its zero-Covid policy. The Chinese economy has suffered from prolonged lockdowns but reports that the government plans to provide support for the economy and raise hopes of economic recovery. 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. 

Supply concerns also boost oil prices. A Canadian pipeline at Keystone was shut down after a large oil spill and most of the oil spill has yet to be recovered. The cap of $60 per barrel set by G7 leaders on Russian oil exports is also expected to limit supply. Russian President Vladimir Putin has threatened to cut production and refuse to sell oil to any country imposing a Russian oil price cap. In addition, OPEC+ will continue oil production cuts into the next year to boost oil prices, curtailing oil supplies by 2 million barrels per day.

Global recession concerns put pressure on oil prices, however. The US Federal Reserve, the ECB, and the BOE all raised interest rates last week, reigniting fears that the poor economic outlook and looming recession will reduce oil demand. Even though the rate hikes were already priced in by markets, hawkish ECB and Fed rhetoric point to further interest rate increases ahead, driving oil prices down. 

TRADE WTI

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: