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Oil prices low despite production cuts

Home >  Daily Market Digest >  Oil prices low despite production cuts

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Written by:
Myrsini Giannouli

03 February 2023
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Oil prices plummeted on Wednesday after the OPEC+ meeting and continued to decline on Thursday, with WTI price touching the $75 per barrel level. If the WTI price declines, it may encounter support near $78.2 per barrel, while resistance may be found near $82.3 per barrel.

The outcome of the OPEC-JMMC Meetings on Wednesday caused oil prices to tumble. The organization kept output target levels unchanged, maintaining the production cuts agreed to in October. These included cutting back 2 million barrels a day to balance out reduced demand. The committee reaffirmed its determination to maintain its production target until the end of the year as expected, but oil prices slumped after OPEC’s announcement on Wednesday. 

US crude oil inventory data on Wednesday showed a rise of 4.1 million barrels, far exceeding expectations of a drop by 1.0 million barrels, putting pressure on oil prices. 

EU leaders have yet to agree on the price cap of Russian oil exports. Meanwhile, the Russian oil supply remains strong, suggesting that the sanctions have not significantly impacted Russian oil sales.

After a series of aggressive rate hikes last year, the Fed has finally decided to relax its hawkish policy, boosting oil prices. The Federal Reserve raised interest rates by only 25 basis points at Wednesday’s meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. Even though inflation rates remain high, cooling price pressures have induced the Fed to scale back its rate hikes. Aggressive rate hikes stifle economic activity fuelling recession fears. As inflation starts to cool though, central banks are beginning to lower the pace of rate hikes, raising oil demand expectations.

The International Monetary Fund has revised its global economic growth outlook, easing recession concerns. According to the IMF World Economic Outlook, the global economy is expected to grow by 2.9% this year, boosting oil demand expectations.

Oil prices are also supported by optimism over China’s economic recovery. China’s economy has suffered, and the country’s debt has ballooned over the past few years. The Chinese government has eased some of its strident Covid regulations, abandoning its zero-Covid policy. China has re-opened its borders after almost three years, fuelling hopes of economic recovery. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand.

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Written by:
Myrsini Giannouli

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