Oil prices rallied on Tuesday on an increased demand outlook, with WTI price touching $77.5 per barrel. If the WTI price declines, it may encounter support near $73.6 per barrel, while resistance may be found near $79.5 per barrel.
Rising hopes of China’s economic recovery offset the effects of increased Fed rate hike odds. Expectations of demand recovery in China boosted oil prices on Tuesday, with key economic data for China due later in the week. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. The Chinese government has eased some of its strident Covid regulations, abandoning its zero-Covid policy, fuelling hopes of economic recovery.
Oil prices are also supported by concerns that Russia will cut its oil exports more than previously announced. G7 leaders set a price cap on Russian oil exports on February 5th. Russia has announced plans to reduce oil output by 500,000 barrels per day as a retaliation for the price cap on the country's oil exports. Recent reports indicate that Russia may cut oil production even further, boosting oil prices.
Recession concerns still run high, however, and aggressive rate hikes stifle economic activity, putting a lid on oil price gains. The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%. US inflation data last week showed that price pressures in the US remain high and are not easing at the pace anticipated.
In addition, the US sold an additional 26 million barrels of crude from its Strategic Petroleum Reserve on Tuesday in an attempt to offset the rise in oil prices.
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