Oil prices remained high this week, with WTI trading above $120 per barrel on Tuesday. If the WTI price continues to retreat, support can be found at $110 per barrel and further down at $94.5 per barrel, while further resistance can be found near $130 per barrel.
The oil demand outlook has increased, as the extended Covid lockdown in Shanghai ended last week and the large commercial hub has resumed its operations, while Covid restrictions are about to be lifted in Beijing. China is the largest importer of crude oil and Covid lockdowns have dampened oil demand, pushing prices down. As Covid lockdowns in China end, however, oil prices are climbing back up.
Rising geopolitical tensions also support oil prices, as tight supply raises fears of an energy crisis, especially in the EU. Last week, EU members agreed on a new package of sanctions against Russia, including a ban on Russian oil imports. This plan will effectively reduce EU oil imports from Russia by 90% by the end of the year and end the EU’s dependency on Russian oil.
In addition, the Biden administration has hinted that they are preparing new sanctions on Russian oil imports that aim to cripple the Russian economy. If implemented, such bans have the potential to drive oil prices further up.
Last week, OPEC+ agreed to raise their output goal by almost 648,000 barrels a day in July and August. Even though the decision to increase oil output should allay fears of oil shortages, oil prices jumped, on reports that OPEC+ production fell short of its output goals last month. Market investors doubt whether OPEC can meet its production targets and deliver its promised output.
The OPEC+ meeting last week came in the wake of the EU ban on Russian oil imports. Before the meeting, it was reported that OPEC was planning to exempt Russia from its production output goals as a result of the embargo. Russia is the world’s third-largest oil producer and exclusion from the production deal would disrupt production quotas. Instead, it was decided that Russia would remain in the deal and countries such as Saudi Arabia and the United Arab Emirates would have to pump up more oil to compensate for the decrease in Russia’s supplies.
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